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Homework answers / question archive / Company ABC has asset turnover of 180%

Company ABC has asset turnover of 180%

Finance

Company ABC has asset turnover of 180% . Its equity multiplier and profit margin are 165% and 6%, respectively. Given a 40% constant dividend payout ratio, what is ABC's sustainable growth rate? 
 

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Computation of ABC's Sustainable Growth Rate:

ROE = Profit margin * Total asset turnover * Equity multiplier 

= 6%*180%*165% 

= 17.82%

 

Sustainable Growth Rate = ROE * ( 1 - Payout ratio ) 

= 17.82%*(1-40%) 

Sustainable Growth Rate = 10.69%

 

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