Question

Last year, Concord Inc. reported total assets of $500, equity of $300, net income of $100, dividends of $40, and retained earnings in the period of $60. What is Concord Inc.'s growth rate if it maintains a fixed leverage ratio (can issue external debt) but issues no equity?

Answer 1

Growth rate = 20%

Explanation;

Growth Formula = g = b x r

g = Sustainable Growth Rate

B= Retention Ratio

R = Return on Equity

so,

Return on Equity = Net Income / Equity value

Net Income = $100

Equity = $300

Return on Equity = $100 / $300 = 33.33%

Retention Ratio = Retained Earnings / Net Income

Net Income = $100

Retained Earnings = $60

Retention Ratio = $60 / $100 = 60%

Growth Rate = Return on Equity x Retention Ratio

Growth Rate= 33.33% x .60

Growth Rate= 20%

I am trying to help you out with all my effort and heart. Please don’t forget, to like the answer if it was helpful. It keeps me Motivated.