Question

Based on the following financial data Net income: $5,000,000 Sales: $25,000,000 Assets: $10,000,000 Dividends: $4,000,000 Equity:...

Based on the following financial data Net income: $5,000,000 Sales: $25,000,000 Assets: $10,000,000 Dividends: $4,000,000 Equity: $2,000,000 Liabilities: $8,000,000 What is the SGR?

Homework Answers

Answer #1

SGR is the sustainable growth rate. It can be calculated by the following formula:

SGR = ROE * (1 -d)

where, ROE is the return on equity and d is the dividend payout ratio.

Now, we will calculate the ROE first.

ROE = Net income / Equity

ROE = $5000000 / $2000000 = 2.5

Next, we will calculate the dividend payout ratio.

Dividend payout ratio = Dividend / Net income

Dividend payout ratio = $4000000 / $5000000 = 0.8

Now, putting these values in the SGR formula, we get,

SGR = ROE * (1 -d)

SGR = 2.5 * (1- 0.8)

SGR = 2.5 * 0.2 = 0.5 or 50%

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