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%
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