Question

Hasbro, incorporated, sells toys and games in over 120 countries, including popular brands such as nerf and play-doh. the following are selected financial data for the company for the period 2012 to 2016. 20122013201420152016 profit margin (%) .111.1 retention ratio (%) .054.1 asset turnover (x)0.910.860.870.870.92 financial leverage (x)3.062.862.613.163.06 growth rate in sales (%)(4.1)(2.1)4.13.612.1 source: data from hasbro 2012 to 2016 annual reports calculate hasbro’s annual sustainable growth rate from 2012 through 2016. note: round your answers to 1 decimal place.

Answer 1

The sustainable growth rate is calculated using the company's return on equity and the retention ratio, and the provided financial data from Hasbro can be used to compute this for each year from 2012 to 2016 after converting percentages to decimals.

Step-by-step explanation:

The sustainable growth rate (SGR) is the maximum rate at which a company can grow its sales without needing to increase financial leverage or equity capital. It is calculated using the formula SGR = ROE × retention ratio, where ROE (Return on Equity) can be derived from the data provided as Profit Margin × Asset Turnover × Financial Leverage. The profit margin, retention ratio (the complement of dividend payout ratio, indicating the portion of net income that is retained in the business), asset turnover (sales divided by total assets), and financial leverage (assets divided by equity) data from Hasbro are utilized to calculate the SGR for each year from 2012 through 2016.

Before computing, it is important to convert percentages into their decimal equivalents (e.g., 11.1% becomes 0.111). The SGR for each year is then rounded to one decimal place, as requested by the student's question. To arrive at an accurate SGR, it may also be useful to factor in any significant changes in corporate policies or economic circumstances that might affect the underlying components of the SGR calculation, such as profit margins or retention ratios.