Calculate the Sustainable Growth Rate for a Firm with a Profit

question 101

Essay

Calculate the sustainable growth rate for a firm with a profit margin of 8%, an asset turnover of 1.25, a total debt ratio of 45%, and a plowback ratio of 65%. Assuming that the ROE remains constant, how large can the sustainable growth rate become?

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Definitions:

New York Stock Exchange

A leading global financial exchange where stocks and other securities are bought and sold, located in New York City.

Excess Reserves

The reserves that banks hold over and above the regulatory requirements set by the central bank, often seen as a liquidity buffer.

Reserve Requirement

The reserve requirement is a central bank regulation that sets the minimum amount of reserves that must be held by a commercial bank, usually as a percentage of the bank's deposits.

Lend Out

Refers to the act of providing something, usually money, to someone with the expectation that it will eventually be returned, often with interest.