Loreto Inc. has the following financial ratios: asset turnover-2.00; profit margin 896; payout ratio-40%; equity/assets-0.60. a....

Question

Question

Loreto Inc. has the following financial ratios: asset turnover-2.00; profit margin 896; payout ratio-40%; equity/assets-0.60.

business finance

Answer 1

Answer #1

Return on equity = Profit margin * Asset turnover * equity multiplier

= 8* 2 *(1/.60)

= 26.66667%

**Equity multiplier = Total asset /total equity so in order to calculate we dividend 1 /(equity /asset)

Return on asset = Profit margin * Asset turnover

= 8*2

= 16%

Retention ratio = 1 -dividend payout

= 1-.40 = .60 or 60%

a)sustainable growth rate = Retention ratio *ROE

= .60 *26.66667

= 16%

B)Internal growth rate = Retention ratio *ROA

= .60 * 16

= 9.6%

Answer 2

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