How to calculate sustainable growth?

How to calculate sustainable growth with:

Profit margin 8.2%
Capital intensity ratio .75
Debt equity ratio .40
Net income \$43,000
Dividends \$12,000

 ArcSine Posts: 961, Reputation: 523 Senior Member #2 Aug 18, 2011, 06:31 AM
The sustainable growth rate (let's call it g*, following common practice) is the result of multiplying two factors: Return on Equity (ROE, which is the ratio Net Income / Equity) and the firm's retention rate (or plowback rate, which is 1 - the payout rate) We'll call that latter factor R.

So g* = ROE x R

You have in your given data all the ingredients needed for this cocktail. Especially when you note that ROE is itself the result of multiplying three factors:

Profit margin (the ratio Net Income / Sales)
Asset turnover (Sales / Assets)
Capitalization (Assets / Equity)

One final clue, then back to you to solve: The Capital Intensity ratio is just the reciprocal of the Asset Turnover ratio.
 meeechie Posts: 2, Reputation: 10 Junior Member #3 Aug 18, 2011, 04:18 PM
 ArcSine Posts: 961, Reputation: 523 Senior Member #4 Aug 19, 2011, 05:35 AM
 msmisty Posts: 3, Reputation: 10 Junior Member #5 Sep 14, 2011, 02:53 PM
Can u show me calculations for this promblem
Thank u