Assuming the following ratios are constant, what is the sustainable growth rate?
Total Assets/sales 1.0
Net income/sales .1
Dividends/net income .4
The sustainable growth rate is defined as:
Sustainable growth rate = Return on equity * (1-payout ratio)
Sustainable growth rate = (net income/equity) * (1- payout ratio)
This solution illustrates how to compute the sustainable growth rate.