Is this statement correct: If a firm with a positive net worth is operating its fixed assets at full capacity, if its dividend payout ratio is 100%, and if it wants to hold all financial ratios constant, then for any positive growth rate in sales, it will require external financing. Please justify your argument.© BrainMass Inc. brainmass.com June 3, 2020, 9:33 pm ad1c9bdddf
Yes the statement is correct.
We could write the need for external financing as
External Financing Needed = Increase in Assets - Increase in spontaneous liabilities - increase in retained earnings
The firm has positive net worth and that implies that assets are higher than liabilities. If all ratios are held constant, then it ...
The solution explains the factors on which the requirements of external financing depend.