Question

Financial plans draw out the connections between:

the firm's plans for growth and the financing requirements.

profit margins and sales growth.

accounting ratios and operational business decisions.

all of these. Which effort will help a firm boost its internal growth rate? Plowing back a high proportion of its earnings Achieving a high return on equity Maintaining a low debt-to-asset ratio All of these

Answer 1

Part 1:
Answer: Correct option is "the firm's plans for growth and the financing requirements".
The connection between the growth plans of a firm and the requirements for the growth is drawn through financial planning.

Part 2:
Answer: Correct answer is "all of these".
Plowing back a high proportion of its earnings:

Internal growth rate=Return on assets*Plowback ratio/[1-Return on assets*Plowback ratio]
This shows that an increase in plowback ratio will increase a firm's internal growth rate and vice versa.
Plowback ratio=1-dividend /net income, plowing back high proportion of earnings means the company will pay less dividend and save more for future growth.

Achieving a high return on equity:

Achieving high return on equity will boost internal growth rate.
Return on equity or ROE=Net income/Shareholder's equity
We can see that, one condition for ROE to be high is higher net income. When a company makes higher net income or profits, it can use the profits generated for future growth.

Maintaining a low debt-to-asset ratio:

When a company maintains low debt to assets ratio, it won't pay much towards debt payments and it can use those funds for future growth.