You wish to compute a ﬁrm's sustainable growth rate from its accounting statements. To do so, you could use the values of:

Question

Quizplus · Accepted Answer

To calculate a firm's sustainable growth rate, we need to use three key values:

1. Net income: This is the profit that the firm generates after all expenses are subtracted from its revenue. It represents how much the firm can reinvest in the business.

2. Equity: This is the value of the firm's assets that are owned by its shareholders. It represents the funds that the firm can use to finance its growth.

3. Dividend payout ratio: This is the percentage of net income that the firm pays out as dividends to its shareholders. It represents how much of the firm's profits are being distributed to investors instead of being reinvested in the business.

Using these values, we can calculate the sustainable growth rate as follows:

Sustainable growth rate = (net income / equity) x (1 - dividend payout ratio)

Therefore, the correct answer is C) Net income, equity, and the dividend payout ratio.

You Wish to Compute a ﬁRm's Sustainable Growth Rate from Its