The most recent financial statements for Live Co. are shown here: Assets and cos
ID: 2821644 • Letter: T
Question
The most recent financial statements for Live Co. are shown here:
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 25 percent dividend payout ratio. No external financing is possible.
What is the sustainable growth rate (in %)?
(Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 4 decimal places. For example, 1.23456% should be entered as 1.2346)
Income Statement Sales $15130 Costs $11288 Taxable Income ? Taxes (40%) ? Net Income ?Explanation / Answer
STEP 1: Asset utilization Rate = Total Sales / Total Asset
i.e.{ $15,130 / ($12,262 + $28,304)} = 37.30%
STEP 2: Profitability rate = Net Income / Total Sales
i.e. ($2,305 / $15,130) = 15.24%
STEP 3: Financial Utilization Rate = (Total Debt / Total Equity) or Total Debt / (Total Asset - Total Debt)
i.e. {$16,278 / ($40,566 - $16,278)} = 67.02%
STEP 4: Return on Equity = Step 1 * Step 2 * Step 3
i.e. (37.30% * 15.24% * 67.02%) = 3.8085%
STEP 5: Retention Ratio = 100% - Dividend rate
i.e. 100% - 25% = 75%
STEP 6 = Sustainable Growth rate = Step 4 *Step 5
i.e. 3.8085% * 75% = 2.8564%
Particulars Amount Formula Sales $15,130 Costs $11,288 Taxable Income $3,842 =Sales - Cost Taxes (40%) $1,537 =Taxable Income *40% Net Income $2,305 =Taxable income-Taxes