The Green Giant has a 4 percent profit margin and a 40 percent dividend payout ratio. The total asset turnover is 1.5 times and the equity multiplier is 1.4 times. What is the sustainable rate of growth?

sustainable growth rate = 5.04%

Explanation:

the sustainable growth rate = retention rate x return on equity

sustainable growth rate = 0.6 x 8.4% = 5.04%

the mathematical explanation on how I determined ROE:

equity multiplier = total assets / equity

1.4 equity = total assets

total assets turnover = net sales / total assets

1.5 = net sales / 1.4 equity

2.1 equity = net sales

profit margin = net profit / net sales

net sales = net profit / 0.04

2.1 equity = net profit / 0.04

2.1 x 0.04 = net profit / equity = ROE = 0.084