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Self-supporting growth rate

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Bannister Legal Services generated $4,000,000 in sales during 2010, and its year-end total assets were $2,800,000. Also, at year-end 2010, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,000 of accruals. Looking ahead to 2011, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 4%, and its payout ratio will be 40%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate? Round your answer to the nearest cent.

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Solution Summary

The solution explains how to determine the self-supporting growth rate

$2.19
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What is its self-supporting growth?

Bannister Legal Services generate $2,000,000 in sales during 2010, its year-end total assets were $1,500,000. Also, at year-end 2010, current liabilities were %500,000, $2,000,000 note payable, $200,000 of accounts payable, and $100,000 of accurals. Its profit margin will be 5%, and its payout ratio will be 60%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self supporting growth rate?

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