Final answer:
To exceed the sustainable growth rate over the internal growth rate, increasing financial leverage is a requirement; this approach leverages more debt relative to equity to achieve higher growth.
Step-by-step explanation:
To exceed the sustainable growth rate beyond the internal growth rate, it is essential for a company to increase in financial leverage. Increasing financial leverage means utilizing more debt financing relative to equity financing. While an increase in net profit margin, increase in total asset turnover, and increase in dividend payout ratio can impact growth, they affect the profitability and efficiency of a business rather than the ability to sustain a higher growth rate through capital structure.
Using financial leverage allows a company to expand its asset base and generate more earnings with less equity capital. However, it is crucial to manage the risks associated with higher leverage, such as the potential for increased financial distress during economic downturns. Hence, careful consideration is necessary when deciding the capital structure that aligns with the firm's growth ambitions and risk appetite.