Last year Axle Inc. reported total assets of $400, equity of $200, net income of $50, dividends of $10, and earnings retained in the period of $40. What is Axle Inc.'s sustainable growth rate?

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = (Return on Equity) * (Retention Ratio). Return on Equity (ROE) = Net Income / Equity = $50 / $200 = 0.25 or 25%. Retention Ratio = Retained Earnings / Net Income = $40 / $50 = 0.8 or 80%. Thus, Sustainable Growth Rate = 25% * 80% = 20%.

Last Year Axle Inc