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Sustainable Growth at a Firm

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A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no external financing sources. What must the total asset turnover be?

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Solution Summary

Total asset turnover demonstrates a company's efficiency in generating revenue and profit margins. Total asset turnover is achieved by computing return on assets (ROA), retention ratio, and internal growth rate ratio.

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Return on assets (ROA) is a ratio used to measure profitability, specifically how much net income was earned for every dollar of assets a company holds.
ROA = profit margin x asset ...

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