1. Which of the following strategies will be necessary to address while conducti
ID: 2780902 • Letter: 1
Question
1. Which of the following strategies will be necessary to address while conducting sustainable growth analysis?
Decrease financial leverage
Separate from a “cash cow”
Add new marginal activities.
Increase the dividend payout
Sell new equity
2. All of the following ratios are the determinants of a firm's sustainable growth rate EXCEPT
Asset turnover ratio
Assets-to-equity ratio
Debt-to-equity ratio
Dividend payout ratio
Profit margin
1. Which of the following strategies will be necessary to address while conducting sustainable growth analysis?
Decrease financial leverage
Separate from a “cash cow”
Add new marginal activities.
Increase the dividend payout
Sell new equity
2. All of the following ratios are the determinants of a firm's sustainable growth rate EXCEPT
Asset turnover ratio
Assets-to-equity ratio
Debt-to-equity ratio
Dividend payout ratio
Profit margin
Explanation / Answer
1.) For conducting sustainable growth analysis, it is important to focus on following:
-> Separate from Cash Cow i.e Value creators should be separated from Value harvestors or value destroyers.
-> Add New Marginal Activities i.e. Adding those activities which are adding postive value in the business and separating those which are diverting the resources to non-value adding activities.
-> Sell New Equity i.e. company can self-fund the growth for further expansion
2.) Firms sustainable growth rate is dependent on all except the Asset to Equity ratio.
The firms sustainable growth rate is dependent on company's financial policy which in turn is dependent on Debt to Equity ratio, Dividend Payout ratio, Profit Margin and Asset Turnover ratio.
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