A firm's planning model has assets and cash proportional to sales. The firm maintains a constant dividend payout ratio and a constant debt to equity ratio. Keying in on the asset to sales ratio, the firm's sustainable growth is _________ and ________ the asset to sales ratio.

Question

Quizplus · Accepted Answer

A firm's sustainable growth rate is higher when the asset to sales ratio is lower because it implies that the firm can generate more sales with fewer assets, thus requiring less financing and allowing for higher growth.

A Firm's Planning Model Has Assets and Cash Proportional to Sales