Dupont

Retention Ratio=1-Dividend Payout Ratio

• RR(14)=(22074-8299*1.07)/22074=60.77%

• RR(13)=(21863-0.89*8375)/21863=65.90%%

• RR(12)=(16978-0.76*8396)/16978=62.42%

2012 2013 2014

PM 23.02% 28.15% 22.45%

TAT 0.6 0.54 0.5

EM 1.84 1.82 1.92

RR 62.42% 65.90% 60.77%

Sustainable Growth Rate 15.86% 18.23% 13.10%

If we examine our expression for the sustainable growth rate, we see that anything that increases ROE will increase the sustainable growth rate.

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier)

Putting it all together, what we have is that a firm’s ability to sustain growth depends on four factors.

1. Total asset turnover: A decrease in the firm’s total asset turnover decreases the sales generated for each dollar in assets. This increases yje firm’s need for new assets as sales grow and thereby decreases the sustainable rate.

direct ratio

2. Profit margin: An increase in profit margin will increase the firm’s ability to generate funds internally and thereby increase its sustainable growth.

direct ratio

3. Equity multiplier: An increase in the equity multiplier increases the debt-paying ability of an enterprise. Because this makes additional debt financing available, it increases the sustainable growth rate.

direct ratio

4. Dividend policy: A decrease in the percentage of net income paid out as dividends will increase the rerention retio. This increases internally generated equity and thus increases sustainable growth.

inverse ratio

TAT↓↓ PM↑↓ EM↓↑ RR↑↓

So we can see that if more than one financial ratio increase, the actual growth rate will higher than the sustainable growth rate of last year.If more than one financial ratio decrease, the actual growth rate will lower than the sustainable growth rate of last year.

There are two ways to achieve unnormal increasing.On the one hand, we can increase the firm’s financial leverge, namely increasing equity multiplier(EM) and decreasing...