Which of the following is the correct formula for calculating sustainable growth rate?
A) Sustainable growth rate = Return on sales × Return on equity
B) Sustainable growth rate = Retention ratio × Return on equity
C) Sustainable growth rate = Retention ratio × Return on assets
D) Sustainable growth rate = Return on sales × Return on assets

Question

Quizplus · Accepted Answer

The formula for calculating sustainable growth rate is retention ratio multiplied by return on equity. Retention ratio is the percentage of earnings that is reinvested back into the company, and return on equity measures the profitability of the company based on shareholder investments. Therefore, choice B is the correct formula for calculating sustainable growth rate.

Which of the Following Is the Correct Formula for Calculating