Baxter Inc. is in a fast growing industry, but doesn't seem to be able to match its competitors' growth rates. Selected financial information for Baxter is as follows ($000):
Research has revealed that the average firm in Baxter's industry pays out 10% of its earnings in dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0 and a total asset turnover of 1.9.
a. Use a sustainable growth rate analysis in the following table to determine the source(s)of Baxter's growth problems.
b. What negatives might be associated with fixing the problems revealed by the analysis?
Definitions:
Competitive Advantage
The unique attributes or capabilities that allow an organization to outperform its competitors.
Reliable
denotes something or someone that consistently performs well or can be depended upon to deliver accurate or expected results.
Quick Response
A strategy or system designed to rapidly fulfill customer orders, often used in manufacturing and retail to improve service levels.
Strategic Decision
A choice made by a company's top management about the direction and scope of the organization, often having long-term effects.
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