Which equation is valid?
A) g = Percent of earnings retained ¸ Return on equity
B) g = Return on equity ¸ Percent of earnings retained
C) g = Return on equity ¸ Return on total assets
D) g = Percent of earnings retained × Return on equity
E) g = Total assets × Return on total assets

Question

Quizplus · Accepted Answer

The formula for sustainable growth rate is g = Percent of earnings retained × Return on equity. This formula shows the percentage of earnings a company can reinvest while maintaining a constant return on equity. This is the most appropriate formula out of the options provided to calculate sustainable growth rate.

Which Equation Is Valid