Company ABC has asset turnover of 180%

Finance Jun 23, 2021

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?

Expert Solution

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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