Loreto Inc. has the following financial ratios: asset turnover = 2.20; net profit margin (i.e., net income/sales) = 6%; payout ratio = 40%; equity/assets = 0.50. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 5.84 % a. Sustainable growth rate Internal growth rate b. %
Loreto Inc. has the following financial ratios: asset turnover = 2.20; net profit margin (i.e., net income/sales) = 6%; payout ratio = 40%; equity/assets = 0.50. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 5.84 % a. Sustainable growth rate Internal growth rate b. %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Transcribed Image Text:### Financial Analysis of Loreto Inc.
Loreto Inc. presents the following financial ratios:
- **Asset turnover**: 2.20
- **Net profit margin** (i.e., net income/sales): 6%
- **Payout ratio**: 40%
- **Equity/assets**: 0.50
We aim to calculate the following:
#### a. Sustainable Growth Rate
The sustainable growth rate (SGR) is the rate at which a company can grow its sales, earnings, and dividends at a consistent rate without needing to increase debt or equity financing. Loreto Inc.'s sustainable growth rate is calculated as follows:
**Sustainable Growth Rate (SGR) = 5.84%**
#### b. Internal Growth Rate
The internal growth rate (IGR) is the maximum growth rate a company can achieve without external financing while maintaining a constant debt-equity ratio. The IGR calculation details are not completed, as seen in the image.
**(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)**
| Measurement | Value |
|-------------------------------|-------|
| a. Sustainable Growth Rate | 5.84% |
| b. Internal Growth Rate | |
For accurate financial management and strategic planning, it is essential to evaluate these growth rates. By understanding these rates, Loreto Inc. can make informed decisions regarding its growth strategies and financial policies.
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