The sustainable growth rate of a firm can be calculated as the product of the
A)return on assets and the return on equity.
B)dividend payout ratio and leverage.
C)retention rate and the return on equity.
D)net profit margin and total sales.

Question

Quizplus · Accepted Answer

The sustainable growth rate of a firm can be calculated as the product of the retention rate and the return on equity. This is because the retention rate measures the portion of earnings that are reinvested into the firm rather than paid out as dividends, and the return on equity measures the profitability of these reinvested earnings. Together, these factors determine the rate at which a firm can sustainably grow its earnings and assets over time.

The Sustainable Growth Rate of a Firm Can Be Calculated