What was the answer to that question when it asked what happens to the growth rate if the return on assets stays the same, payout ratio goes up and debt comes down? Then it said the analyst thinks it would be a good idea to use the Dupont forumula to find out. Not in this order but it was like: A. Goes down B. Goes up C. Stays the same
anyone on this one?
i cant remember what i put… but lower debt = less leverage, so should = less growth payout ratio goes up = less cash to invest in projects = less growth
I don’t remember the question specifics, but it was solved by using: Retention rate x ROE. So if payout goes up, retention rate goes down. Then we had to solve for ROE, which I don’t remember which direction it went. anyone else?
Low debt/equity, i remember debt was going down , hence equity will go up and so leverage in the dupont equation would go down… (assets/quity goes down)… If retention ration goes down, the growth will go down g = (1-payout ratio)Xnet profit margin X ROA X Assets/equity
decrease decrease
yeah growth decreases b/c retention rate is lower