Question

Below are the information for two different Saudi companies: Jarir Marketing Co and United Electronics Co

Jarir Company has the following financial information for 2019

• Sales =8,000,0000, COGS= 60% of sales , Dep= 8% of the total FA, interest= 30,000, Tax= 30%.
• C.A. = 4,050,000 , F.A. = 12,000,000
• C.L. = 3,550,000, LTD = 3,500,000, C.S. =8,000,000, R.E. = 1,000,000, Div = 200,000

United Electronics Company has the following financial information for 2019

• Sales = 6,000,000, COGS= 70% of Sales, Dep= 11% of the total FA, interest= 30,000, Tax= 30%.
• C.A. = 3,000,000, F.A. = 8,000,000
• C.L. = 2,500,000, LTD = 4,500,000, C.S. =3,500,000, R.E. = 500,000, Div = 100,000

1. What is the sustainable growth rate for both companies?
2. Using the sustainable growth rates computed in the first question, explain the difference between the two companies’ rates. ( )

If 2020 sales are projected to be SAR10M for Jarir and 9M for United Electronics, what is the amount of external financing needed, assuming both companies are operating at full capacity, and profit margin and payout ratio remain constant?

Answer 1