Finance Stock valuation : Computation of growth rate by ClassOf1

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									              Sub: Financial Accounting                                                               Topic: Stock Valuation

              Question:
              Computation of sustainable growth rate.
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              The Stieben Company has determined that the following will be true next year;
                     T = Ratio of total assets to sales = 1
                     P = Net profit margin on sales = 5%
                     d = Dividend-payout ratio = 50%
                     L = Debt-equity ratio = 1

                    a. What is Stieben’s sustainable growth rate in sales?
                    b. Can Stieben’s actual growth rate in sales be different from its sustainable growth
                        rate? Why or why not?
              How can Stieben change its sustainable growth?

              Solution:
               a. Sales                                                                 =                 $ 1,000,000
               Less: Cost of Good Sold                                                  =                 $   300,000
               Gross profits                                                            =                 $   700,000
               Less : Operating Expenses
                                                 
								
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