The sustainable rate of growth for a firm can be increased by:
A)decreasing the debt-equity ratio.
B)decreasing the profit margin.
C)increasing the dividend payout ratio.
D)increasing the capital intensity ratio.
E)increasing the total asset turnover.

Question

Quizplus · Accepted Answer

Increasing the total asset turnover would increase the firm's sustainable rate of growth as it indicates the effectiveness of the firm in generating sales from its assets. This can be achieved by increasing sales or reducing the asset base. Decreasing the debt-equity ratio may improve the firm's financial position but it does not directly impact the sustainable rate of growth. Decreasing the profit margin and increasing the dividend payout ratio would reduce the amount of funds available for reinvestment, thus limiting the firm's sustainable rate of growth. Similarly, increasing the capital intensity ratio would increase the asset base required for generating sales, which would lower the total asset turnover and reduce the firm's sustainable rate of growth.

The Sustainable Rate of Growth for a Firm Can Be