Sustainable growth rate: Courtney Bike Company has a profit margin of 7.8 per cent, a debt ratio of 45 per cent, total assets of $2,112,370, and sales of $4,276,990. If the company has a dividend payout ratio of 60 per cent, 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): ROE = Profit Margin * Asset Turnover * Equity Multiplier. Profit Margin = 7.8%, Asset Turnover = Sales / Total Assets = $4,276,990 / $2,112,370, and Equity Multiplier = 1 / (1 - Debt Ratio) = 1 / (1 - 0.45). Calculate ROE and then SGR.

Sustainable Growth Rate: Courtney Bike Company Has a Profit Margin