Asked by Kimberly Beltran on Jul 02, 2024
Verified
The sustainable growth rate is equal to:
A) the retention ratio multiplied by ROE.
B) the dividend payout ratio multiplied by ROA.
C) the dividend payout ratio multiplied by ROE.
D) the retention ratio multiplied by ROA.
Sustainable Growth Rate
The maximum rate at which a company can grow its revenues and earnings without borrowing new funds or seeking additional investment.
Retention Ratio
The proportion of net income that is retained by a company, rather than distributed to shareholders as dividends.
- Pinpoint components dictating an enterprise's external financial requisites and potential for steady growth.
- Comprehend the significance of financial ratios and metrics in devising plans for sustainable business development.
Verified Answer
AW
Ashley Wilcox6 days ago
Final Answer :
A
Explanation :
The sustainable growth rate is calculated as the retention ratio (which is the proportion of earnings not paid out as dividends) multiplied by the return on equity (ROE). This measures how fast a company can grow its earnings without needing to issue new equity.
Learning Objectives
- Pinpoint components dictating an enterprise's external financial requisites and potential for steady growth.
- Comprehend the significance of financial ratios and metrics in devising plans for sustainable business development.
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