Sustainable growth rate: Sterling Ltd currently has sales of $4,512,644 and profit of $736,253. It has a debt ratio of 47 per cent and a dividend payout ratio of 65 per cent. The company has total assets of $3,812,832. What is the company's sustainable growth rate?

Question

Quizplus · Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula: SGR = ROE * (1 - Dividend Payout Ratio). First, calculate the Return on Equity (ROE) as Profit / (Total Assets - Total Liabilities). Total Liabilities = Total Assets * Debt Ratio = $3,812,832 * 0.47 = $1,791,032.64. Equity = Total Assets - Total Liabilities = $3,812,832 - $1,791,032.64 = $2,021,799.36. ROE = $736,253 / $2,021,799.36 = 0.3641 or 36.41%. SGR = 36.41% * (1 - 0.65) = 12.74%, approximately 12.7%.

Sustainable Growth Rate: Sterling Ltd Currently Has Sales of $4,512,644