Aisle's Markets has a 7% profit margin and a 60 percent dividend payout ratio. The total asset turnover is 1.35 and the debt-equity ratio is.60. What is the sustainable rate of growth?

Question

Quizplus · Accepted Answer

The sustainable growth rate (SGR) can be calculated using the formula: SGR = ROE * (1 - dividend payout ratio). First, calculate the Return on Equity (ROE) using the formula: ROE = Profit Margin * Total Asset Turnover * Equity Multiplier. The Equity Multiplier is 1 + Debt-Equity Ratio. So, ROE = 0.07 * 1.35 * (1 + 0.60) = 0.1512 or 15.12%. Then, SGR = 0.1512 * (1 - 0.60) = 0.06048 or 6.44%.

Aisle's Markets Has a 7% Profit Margin and a 60