Homework Answers
AFNWC = Additional finance needed for working capital
=
Where stands for
change.
Based on the financial statements,
= 500 - 500 = 0
=300 - 340 = - 40
= 320 - 300 = 20
Hence, AFNWC = 0 = (-40) - 20 = - $ 60
Hence, Net working capital will get released to the extent of $ 60.
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Next question
Calculation of g*
g* stands for sustainable growth rate and is given by
Where,
NPM (net profit margin) = NI/Revenues = 346.80 / 5,700 = 6.08%
DPO (dividend payout ratio) = Dividends / NI = 0
D/E (debt-to-equity ratio) = Total Liabilities/Equity = 1,151 / 796.80 = 1.44
A/R (assets-to-revenues ratio) = Total Assets/Revenues = 1,947.8 / 5,700 = 0.34
Hence
= 77.07%
Actual growth in Revenue = RT+1 / RT - 1 = 5,700 / 5,050 -1 = 12.87%
Actual growth in the year T+1 is far lower than the sustainable growth rate. This might be because the firm didn't raise external capital up to its full potential to drive growth. Since external capital infused were lower, the growth rate achieved was lower.
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