
Most
of us have seen the equations for sustainable growth. In particular,
the growth in earnings per share = (1  payout ratio) * Return
on equity.
a.
Can you use the
same equation to compute growth in operating income?
b.
Under what assumptions
will this sustainable growth rate also be equal to your expected
growth rate?
c.
Increasing the
amount you reinvest back into the business (reduce the payout ratio)
will increase the growth rate for any company which makes a profit
on its projects. Will it also increase value?
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