Dynamo Engines Inc., has an ROA of 10%, a profit margin of 6%, an asse

Dynamo Engines Inc., has an ROA of 10%, a profit margin of 6%, an assets to equity ratio of 1.30 and a retention ratio of 0.70. What is the firm’s sustainable growth rate?

What will be an ideal response?

ANSWER

Sustainable growth rate = ROE * b, where b is the retention ratio. = (.10 * 1.30 ) * (0.70 ) = 9.10%