In: Finance
The internal growth rate of Bestbuy is 30%. The profit margin is 20% and the asset turnover is 2. What is the payout ratio?
The payout ratio is computed as follows:
Internal growth rate = (ROA x b) / (1 - ROA x b)
ROA is computed as follows:
= Profit margin x Asset turnover
= 0.20 x 2
= 0.40
0.30 = (0.40 x b) / (1 - 0.40 x b)
0.30 - 0.12 b = 0.40 b
0.30 = 0.52 b
b = 0.576923077
So, the payout ratio will be as follows:
= 1 - b
= 1 - 0.576923077
= 42.31% Approximately
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