Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio.The asset turnover ratio is 1.6 and the assets-to-equity ratio (using beginning-of-period equity)is 1.77.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 ROE (Return on Equity) using the formula: ROE = Profit Margin * Asset Turnover * Assets-to-Equity. ROE = 0.045 * 1.6 * 1.77 = 0.12744 or 12.744%. Then, SGR = 12.744% * (1 - 0.15) = 10.8324%, which is approximately 10.83%.

Komatsu Has a 4