1-14 Notes BF - o ROA= NI/TA • Internal Growth Rate o The...

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1/14/08 Business Finance Notes Financial planning o 3 sub areas Capital budgeting Capital Structure Day-to-day operations Deriving DuPont Identity o ROE = NI/TE (Net Income, Total Equity) o Multiply by 1 (TA/TA) and then rearrange ROE = (NI/TE) (TA/TA) ROE = (NI/TA)(TA/TE) = ROE *EM o Multiply by 1 (Sales/Sales) and rearrange ROE = (NI/TA)(TA/TE)(Sales/Sales) ROE = (NI/Sales)(Sales/TA)(TA/TE) ROE = PM * TAT * EM Product Margin, Total Equity Turnover, Equity Margin EM = (TA/TE) = ((TD+TE)/TE)= ((TD/TE)+1)
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Unformatted text preview: o ROA= NI/TA • Internal Growth Rate o The IGR tells us how much the firm can grow assets using retained earnings as the only source of financing o IGR= ROA*B 1-ROA *B o B=Retention Ratio = 1 – Payout ratio • Sustainable Growth Rate o The SGR tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio o SGR= ROE*B 1-ROE *B • See Red Notebook 1/13 BF Practice Problems •...
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This note was uploaded on 04/07/2008 for the course BA 3341 taught by Professor Polkovnichenko during the Spring '08 term at University of Texas at Dallas, Richardson.

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