Respuesta :
If the leading corporation has a retention ratio of 16 percent and a return on equity of 14 percent, its sustainable growth rate is 11.76%.
Retention Ratio = 1- Payout ratio
Retention Ratio = 1-16% = 1-0.16 = 0.84 = 84%
sustainable Growth Rate = return on Equity * retention ratio
= 14.00 *0.84 = 11.76%
The percentage of earnings retained by the company is known as the retention ratio. The retention ratio is the portion of equity net income that is kept in-house rather than distributed as dividends in order to expand the company. It is the polar opposite of the payout ratio, which computes the proportion of profits distributed to shareholders in the form of dividends. Another name for the retention ratio is the plowback ratio.
The retention ratio aids investors in determining how much cash a company is holding back to reinvest in its operations. Earnings growth equity may be negatively impacted if a corporation distributes all of its retained earnings as dividends or does not reinvest them in the company.
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