Question

The Green Giant has a 4 percent profit margin and a 63 percent dividend payout ratio. The total asset turnover is 1.30 times and the equity multiplier is 1.60 times. What is the sustainable rate of growth?

Answer 1

= Solutions given Information Profit Margin = 4% Dividend Payout Ratio = 63% Total Asset Turnover = 1.30 times Equity Multiplier = 1.60 times we need to calculate sustainable rate of growth. Sustainable Rate of Growth = Return on Equity (ROEX 1. Retention Ratio 1 - 1 Ro Ex Retention Ratio] we need to calculate Return on Equity and Retention Ratio . Return on Equity (ROE) = Profit Margin x Total Asset Turnover [As per Du Pont Equation] x Equity Multiplier = 4%81: 30 x 1.60 z 8.32 y. or 0.0832 Retention ratio - - Dividend payout Ratio -1- 63% - 377, 00 0.37

Sustainable Ratio Rate of growth = ROEX Retention T-{Ro Ex Retention Ration] 2 0.0832 X 0.37 0.030784 1-10.0832X0.37] 0.0969216 = 0.3176 -0.31809 3.18% Answer