Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio.The asset turnover ratio is 1.6 and the assets-to-equity ratio (using beginning-of-period equity)is 1.77.What is Komatsu's sustainable rate of growth?

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Quizplus · Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula: SGR = ROE * (1 - Dividend Payout Ratio). ROE can be calculated as Profit Margin * Asset Turnover * Assets-to-Equity Ratio. Substituting the given values: ROE = 4.5% * 1.6 * 1.77 = 12.744%. Then, SGR = 12.744% * (1 - 0.15) = 10.8324%, which is approximately 10.83%.

Komatsu Has a 4