Reference no: EM133473958
Homework: Quantitative Analysis for Managers- Sustainable Growth Rate
Instructions:
You have been the Operations Manager for your company for the last five years and are preparing to ask for a large raise. You have just learned from a managerial finance seminar that:
Sustainable Growth Rate = %Profit Margin X % Retention Ratio X Asset Turnover X Financial Leverage.
You ask your CFO for the following data:
|
2012
|
2013
|
2014
|
2015
|
2016
|
|
%Profit Margin
|
6.00
|
7.00
|
4.60
|
5.20
|
7.20
|
|
% Retention Ratio
|
99.50
|
100.00
|
100.00
|
100.00
|
100.00
|
|
Asset Turnover
|
1.33
|
2.02
|
1.92
|
2.07
|
2.64
|
|
Financial leverage
|
1.61
|
1.69
|
1.57
|
1.57
|
1.64
|
|
%Growth rate in sales
|
46.80
|
84.60
|
13.10
|
25.90
|
57.10
|
Based on the information above, answer the following questions:
Question A. Calculate the annual sustainable growth rate for each of the above years.
Question B. Compare the sustainable growth rate with the actual growth rate in sales, what growth problems did management face over this period?
Question C. Present the results of your calculations for #A and #B and the analysis behind it to the CEO.
Question D. Explain how this data justifies a large raise for the Operations Manager.