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Financial Growth Rate Calculations Guide

The document contains financial statements and information for multiple companies, and questions about calculating their sustainable growth rates, external financing needs, and other financial metrics. It provides sales, costs, assets, liabilities, equity, and other data, and asks questions about determining growth rates, financing needs, and profit margins given details like constant dividend payout ratios and debt-equity ratios.

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Daniel Tham
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40 views2 pages

Financial Growth Rate Calculations Guide

The document contains financial statements and information for multiple companies, and questions about calculating their sustainable growth rates, external financing needs, and other financial metrics. It provides sales, costs, assets, liabilities, equity, and other data, and asks questions about determining growth rates, financing needs, and profit margins given details like constant dividend payout ratios and debt-equity ratios.

Uploaded by

Daniel Tham
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Tutorial 9

#1:
The most recent financial statements for Summer Tyme, Inc., are shown here:

Income Statement
Sales
Costs
Taxable
income
Taxes (34%)
Net income

Balance Sheet

$4,200
3,300
$900
306
$594

Current assets
Fixed assets

Total

$3,600
7,900

$11,500

Current liabilities
Long-term debt
Equity

$2,100
3,650
5,750

Total

$11,500

Assets, costs and current liabilities are proportional to sales. Long-term debt and equity
are not. The company maintains a constant 40% dividend payout ratio. As with every
other firm in its industry, next years sales are projected to increase by exactly 15%.
What is the external financing needed?

#2:
The most recent financial statements for Live Co. are shown here:
Income Statement
Sales
$13,250
Costs
9,480
Taxable
income
Taxes (35%)
Net income

$3,770

Balance Sheet
Current Assets
$10,400 Debt
Fixed assets
28,750 Equity
Total

$39,150 Total

$17,500
21,650
$39,150

1,508
$2,262

Assets and costs are proportional to sales. Debt and equity are not. The company
maintains a constant 30 percent dividend payout ratio. No external equity financing is
possible. What is the internal growth rate?
#3:
For the company in the previous problems, what is the sustainable growth rate?

#4:
McCormac Co. whishes to maintain a growth rate 12 percent a year, a debt-equity ratio of
1.20, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is
constant at 0.75. What profit margin must the firm achieve?
#5:
Youve collected the following information about St. Pierre, Inc,:
Sales
Net income
Dividends
Total debt
Total equity

= $195,000
= $17,500
= $9,300
= $86,000
= $58,000

What is the sustainable growth rate for St. Pierre, Inc.? If it does grow at this rate, how
much new borrowing will take place in the coming year, assuming a constant debt-equity
ratio? What growth rate could be supported with no outside financing at all?

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