If a firm’s Sustainable growth rate is lower than the forecasted growth rate then what can a company do to ‘fix’ this and achieve forecasted results?
Can leverage affect the results?
Sustainable growth rate = ROE * retention ratio.
So i think you can change these things.
First is the retention rate which is easy and just 1 -dividend payout ratio.
If you lower the payout ratio, your sustainable growth rate will increase.
Next, if you break out ROE to DUPONT = Net Profit Margin (Net Income/Sales) * Asset Turnover (Sales/Assets) * Leverage (Assets/Equity)
Increasing any of those will increase sustainable growth rate. So yes, increasing leverage will increase g.