Week 3 DQ #2 Corp Fin One of a CFO\'s most important responsibilities is to help

Question

Week 3 DQ #2 Corp Fin

One of a CFO's most important responsibilities is to help his/her company in managing growth. This week's readings refer to two growth rates, an internal rate and a sustainable rate of growth. What does each rate mean? Why do we, as CFO's, need to understand the implications of both the internal and sustainable rates of growth? What are the four primary determinants of a company's growth and how does each factor add to or limit a company's growth potential?

NO SCREEN SHOTS OR IMAGES OF RESPONSE. PLEASE TYPE YOUR ANSWER OR UPLOAD DOCUMENT IF REQUIREMENTS MENTIONED ABOVE ARE NOT MET I WILL GIVE A NEGATIVE RATING

Explanation / Answer

The internal rate of growth is the maximum rate at which the firm can grow without resorting to external financing. It is defined as retained earnings divided by the total assets.

Sustainable growth rate is defined as the product of the firm’s return on equity multiplied by the percentage of profits that is reinvested in the firm.

As a CFO, it is essential to understand sustainable growth rate and internal growth rate to estimate the maximum limits of growth that the firm can have without resorting to external financing in the form of debt or equity. And if still higher growth rates are required, then the firm should plan for external financing.

The four major factors determining a firm’s growth are:

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.