Sustainable growth 3 sgr addition to retained earnings

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Unformatted text preview: bilities or from retained earnings. ● Thus if financial policies are unchanged, the rate of shareholder equity growth will limit sales growth. Sustainable growth (3) SGR = Addition to retained earnings (AE) / (Final Equity - AE) or = ROE * b / (1 - ROE *b) where b = addition to retained earning / net income b is the “plowback” ratio. Sustainable growth (4) ● The sustainable growth rate is particularly valuable because it combines companies’ operating (profit margin and asset efficiency) and financial (capital structure and retention rate) elements into one comprehensive measure Sustainable growth (5) It can also be written as SGR = ROE * b when Equity is the initial value, or = ROE * (1- dividend payout ratio). Sensitivity analysis ● The analysis of sustainable growth rate provides a method for developing sensitivity analysis of growth to the changes in the fundamental factors. Walmart http://ycharts.com/chart_creator# http://finance.yahoo.com/q/ks?s=WMT Internal growth ● Now, what if the firm cannot borrow from the markets. ○ Rather than Equity constant, the assets are constant. Internal growth = ROA * b / ( 1 - ROA * b) For next week Page 126. Problem 42 Page 127. Problem 3.1 ; 3.2 Page 128. Problem 3.4...
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This document was uploaded on 02/23/2014 for the course CB 3410 at City University of Hong Kong.

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