If sales growth is SLOWER than the sustainable growth rate then the ROE is also lower.

Question

Quizplus · Accepted Answer

This is because the sustainable growth rate calculates the maximum rate at which a company can grow without external financing while maintaining a constant level of profitability. If sales growth is slower than this rate, it means that the company is not growing as fast as it could without risking its profitability. This means that the return on equity (ROE) will also be lower because the company is not generating as much profit as it could if it were growing at its maximum sustainable rate.

If Sales Growth Is SLOWER Than the Sustainable Growth Rate