Question

Assume the following ratios are constant.

Total asset turnover	=	2.34
Profit margin	=	6.2	%
Equity multiplier	=	1.81
Payout ratio	=	31	%

What is the ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
ROE             %

What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Sustainable growth rate             %

Answer 1

ROE Profit margin*Asset turnover*Equity multiplier 0.062* (2.34) *1.81 0.2625948 26.26% = Retention Ratio 1-Dividend payout ratio 1-0.31 0.69 ROE*b 0.2625948*0.69 0.181190412 Sustainable growth rate = = ROE*b/(1-ROE*b) 0.181190412/(1-0.181190412) 0.221285162 22.13%