Baxter Inc. is in a fast growing industry, but doesn't seem to be able to match its competitors' growth rates. Selected financial information for Baxter is as follows ($000):
Research has revealed that the average firm in Baxter's industry pays out 10% of its earnings in dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0 and a total asset turnover of 1.9.
a. Use a sustainable growth rate analysis in the following table to determine the source(s)of Baxter's growth problems.
b. What negatives might be associated with fixing the problems revealed by the analysis?

Question

Baxter Inc. is in a fast growing industry, but doesn't seem to be able to match its competitors' growth rates. Selected financial information for Baxter is as follows ($000): 
  Research has revealed that the average firm in Baxter's industry pays out 10% of its earnings in dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0 and a total asset turnover of 1.9. 
a. Use a sustainable growth rate analysis in the following table to determine the source(s)of Baxter's growth problems. 
  b. What negatives might be associated with fixing the problems revealed by the analysis?

Quizplus · Accepted Answer

The Answer of Baxter Inc. is in a fast growing industry, but doesn't seem to be able to match its competitors' growth rates. Selected financial information for Baxter is as follows ($000): 
  Research has revealed that the average firm in Baxter's industry pays out 10% of its earnings in dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0 and a total asset turnover of 1.9. 
a. Use a sustainable growth rate analysis in the following table to determine the source(s)of Baxter's growth problems. 
  b. What negatives might be associated with fixing the problems revealed by the analysis?