Question

Loreto Inc. has the following financial ratios: asset turnover = 1.60; net profit margin (i.e., net income/sales) = 6%; payout ratio = 25%; equity/assets = 0.80.

**a.** What is Loreto's sustainable growth
rate?

**b.** What is its internal growth rate?

Answer #1

Solution:-

1) Computation of Loreto's sustainable growth rate;

Sustainable growth rate = ROE * b

b = retention ratio

ROE = asset tuenover * asset/equity * net profit margin

= 1.6 * 1.25 * 0.06

= 0.12

Retention ratio = 1-pay out ratio

= 1-25%

= 75% or 0.75

Sustainable growth rate = 0.12 * 75%

= 9%

Therefore the sustainable groth rate is **9%**

2) Computation of internal growth rate;

Internal growth rate = ROA * b/(1-ROA*b)

ROA = Asset turnover * net profit margin

=1.6 * 6%

= 0.096

Internal growth rate = 0.096 * 0.75 / (1- 0.096 * 0.75)

= 0.072 / 0.928

= 0.0775862 or 7.75862%

Therefore the internal growth rate is
**7.75862%**

Loreto Inc. has the following financial ratios: asset turnover =
2.60; net profit margin (i.e., net income/sales) = 4%; payout ratio
= 25%; equity/assets = 0.30.
a. What is Loreto's sustainable growth
rate?
b. What is its internal growth rate?

Assume the following ratios are constant: Total asset turnover 2
Profit margin 5.1 % Equity multiplier 1.2 Payout ratio 25 % What is
the sustainable growth rate?

Assume the following ratios are constant. Total asset turnover =
2.24 Profit margin = 5.2 % Equity multiplier = 1.71 Payout ratio =
49 % What is the sustainable growth rate?

Assume the following ratios are constant.
Total asset turnover 1.43
Profit margin 9.1%
Equity multiplier 1.8
Payout ratio 67%
What is the sustainable growth rate?

Assume the following ratios are constant. Total asset turnover =
2.30 Profit margin = 5.8 % Equity multiplier = 1.77 Payout ratio =
35 % What is the sustainable growth rate? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.) Sustainable growth
rate

Assume the following ratios are constant.
Total asset turnover
=
2.23
Profit margin
=
5.1
%
Equity multiplier
=
1.70
Payout ratio
=
48
%
What is the sustainable growth rate? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate ________ %

Assume the following ratios are constant:
Total asset turnover
2.50
Profit margin
5.4
%
Equity multiplier
1.30
Payout ratio
35
%
What is the sustainable growth rate? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)

Company A has the following financial data. Assume that the
financial ratios of the company are constant.
Payout ratio 40%, Total asset $120 million, Total equity $100
million, Profit margin 8%, Total asset turnover 1.4
What is the sustainable growth rate of this company?

you are given the following information for Hendrix Guitars,
Inc. Profit margin 6.5% total Asset turnover 1.5 Total debt ratio
.46 Payout ratio 30% calculate the sustainable growth rate.

16- A company has a gross profit margin of 50%, net profit
margin of 10%, dividend payout ratio of 40%, asset turnover of 0.8,
financial leverage of 2.5. What is the company’s sustainable growth
rate?

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