Question

You’ve collected the following information about Sully, Inc.:

Profit margin	=	4.43	%
Total asset turnover	=	3.40
Total debt ratio	=	.26
Payout ratio	=	28	%

What is the sustainable growth rate for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Sustainable growth rate              %
  
What is the ROA? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Return on assets              %

Answer 1

Profit margin=Net income/Sales

Hence net income=0.0443Sales

Total asset turnover=Sales/Total Assets

Hence Sales=3.4Total assets

Total debt ratio=Total debt/Total assets

Hence Total debt=0.26Total assets

Total assets=debt+equity

Hence equity=(1-0.26)Total assets

=0.74Total assets

ROE=Net income/Total equity

=(0.0443Sales/0.74Total assets)

=(0.0443*3.4Total assets/0.74Total assets)

=0.20354054

Retention ratio=1-payout ratio

=(1-0.28)=0.72

SGR=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

=(0.20354054*0.72)/[1-(0.20354054*0.72)]

=17.17%(Approx).

ROA=
Net income/Total Assets

=(0.0443Sales/Sales/3.4)

=15.06%(Approx).