Calculate the annual sustainable growth rate

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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.

Reference no: EM133473958

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