Question

SGS Corp. has an ROE of 14 percent and a payout ratio of 22 percent. What is its sustainable growth rate?

Answer 1

14.05%

Step-by-step explanation:

Return on equity ROE =14%

payout ratio = 22%

Now, retention ratio b = 100-payout ratio= 100-22=88%

=0.88

Now sustainable growth rate = (ROE×b)/(1-(ROE*b)

= (0.14*0.88)/(1-0.14*0.88) =0.1405

=14.05%