Sustainable Growth Rate
I have a question on the sustainable growth rate.
The following definitions are provided in Wiley:
ROE = Net Income / Average Equity
Retention Ratio = (Net Income Attributed to Common Shareholders - Common Dividends) / Net Income Attributed to Common Shareholders
I’m presuming that Net Income Attributed to Common Shareholders = Net Income - Preferred Dividends
If the above are true, why does ROE * RR give us a sustainable growth rate? The numerator of ROE (Net Income) and denominator of RR (Net Income - Preferred Dividends) are different.
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.