In: Finance
Profit margin | = | 9.2 | % | |
Capital intensity ratio | = | .53 | ||
Debt−equity ratio | = | .68 | ||
Net income | = | $ | 103,000 | |
Dividends | = | $ | 52,000 | |
Based on the above information, calculate the sustainable growth
rate for Southern Lights Co. (Do not round intermediate
calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Sustainable growth rate
%
ROE = (PM)(TAT)(EM)
ROE = (0.092)(1 / 0.53)(1 + 0.68)
ROE = 0.2916226 or 29.16226%
Plowback ratio = 1 - (Dividends / Net income)
Plowback ratio = 1 - ($52,000 / $103,000)
Plowback ratio = 0.4951456
Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]
Sustainable growth rate = [0.2916226(0.4951456)] / [1 – 0.2916226(0.4951456)]
Sustainable growth rate = 0.1688 or 16.88%