If a ﬁrm wants to maintain its present ratio of debt to equity, its present dividend payout ratio, and does not want to sell any new equity, the ﬁrm's growth rate in sales and assets must be less than or
Equal to its:

Question

Quizplus · Accepted Answer

The sustainable growth rate is the maximum growth rate a company can achieve without having to increase its ratio of debt to equity or selling new equity while maintaining the current dividend payout ratio. Therefore, if the firm wants to maintain its present ratio of debt to equity, its present dividend payout ratio, and does not want to sell any new equity, its growth rate in sales and assets must be less than or equal to its sustainable growth rate.

If a ﬁRm Wants to Maintain Its Present Ratio of Debt