Here is a table describes some information from financial statements of DC company for the date December 31,20X8.
Based on the following information, what is the sustainable growth rate of DC company?
- dividend paid: $80,000
- total asset turnover:0.58
- financial leverage: 1.7
- sales to net income:6.5
- tax rate:20%
C is correct.
Sustainable growth rate = (retention rate)*(ROE).
ROE =net profit margin* total asset turnover* financial leverage=(1/6.5) *0.58 *1.7=0.1517
Retention rate = (1 - dividend payout ratio) = I -[80000/(800000/6.5)]=0.35
Sustainable growth = 0.1517*0.35=0.0531