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Which of the following is NOT a main determinant of growth?

a. operating efficiency, measured with the profit margin
b. asset use efficiency, measured with the total asset turnover
c. payout policy, measured with the payout ratio
d. market capitalization maximization, measured with market value ratios
e. choice of optimal debt ratio, measured with financial leverage ratios

1 Answer

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Final answer:

The item not considered a main determinant of growth is market capitalization maximization, measured with market value ratios. Instead, market capitalization is an outcome of growth and other financial strategies rather than a direct determinant.

Step-by-step explanation:

The main determinants of growth in a business include operating efficiency, asset use efficiency, and payout policy. Operating efficiency is measured with the profit margin, which assesses how much profit a company generates for each dollar of revenue. Asset use efficiency is determined by the total asset turnover, which reflects how well the company is using its assets to generate sales. Payout policy is reflected in the payout ratio, which shows the proportion of earnings paid out as dividends to shareholders.

However, market capitalization maximization, measured with market value ratios, is NOT a main determinant of growth but rather an outcome of growth. Market value ratios are used to assess whether a firm's stock is overvalued or undervalued in the market. Lastly, the choice of the optimal debt ratio, measured by financial leverage ratios, is another important aspect of a company's financial strategy that affects its risk and return but is not a direct determinant of growth itself.

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