#1
What does Sustainable Growth Rate (SGR) represent in finance?
The rate at which a company can grow its sales without borrowing more money
ExplanationSGR represents a company's ability to expand sales without increasing debt.
#2
What is the primary advantage of a company achieving a sustainable growth rate?
Stability in financial performance
ExplanationA stable financial performance is the primary advantage of achieving a sustainable growth rate.
#3
Which of the following is a key factor in determining a company's Sustainable Growth Rate?
Dividend policy
ExplanationDividend policy is a critical factor in determining a company's Sustainable Growth Rate.
#4
What role does the concept of 'economic moat' play in sustaining a company's growth rate?
It signifies the competitive advantage that protects a company from rivals
ExplanationEconomic moat denotes the competitive advantage safeguarding a company from competitors, thus sustaining its growth rate.
#5
What does the term 'organic growth' refer to in the context of Sustainable Growth Rate?
Growth achieved internally, without external influences
ExplanationOrganic growth pertains to expansion achieved internally without external influences in the context of Sustainable Growth Rate.
#6
Which formula is commonly used to calculate Sustainable Growth Rate (SGR)?
SGR = (Retained Earnings / Net Income) * Sales Growth
ExplanationSGR is calculated by dividing retained earnings by net income, then multiplying by sales growth.
#7
What does a Sustainable Growth Rate above 100% indicate for a company?
The company is experiencing rapid and sustainable growth
ExplanationA Sustainable Growth Rate above 100% suggests the company is growing rapidly and sustainably.
#8
Which factor does not directly contribute to the calculation of Sustainable Growth Rate (SGR)?
Total Liabilities
ExplanationTotal liabilities do not directly impact the calculation of Sustainable Growth Rate.
#9
In finance, what does the term 'external financing needed' (EFN) represent in the context of Sustainable Growth Rate?
The need for additional funding to support growth
ExplanationEFN represents the requirement for extra funding to sustain growth.
#10
What is the significance of the term 'plowback ratio' in relation to Sustainable Growth Rate (SGR)?
It represents the portion of earnings retained for growth
ExplanationPlowback ratio signifies the portion of earnings kept for future growth.
#11
How does the retention ratio impact Sustainable Growth Rate (SGR)?
Higher retention ratio leads to a higher SGR
ExplanationA higher retention ratio increases the Sustainable Growth Rate.
#12
In the context of Sustainable Growth Rate, what does the term 'plowback ratio' refer to?
The ratio of retained earnings to net income
ExplanationPlowback ratio represents the proportion of earnings retained for growth.
#13
How does a high debt-to-equity ratio affect a company's Sustainable Growth Rate?
Decreases SGR
ExplanationA high debt-to-equity ratio reduces the Sustainable Growth Rate.
#14
What role does the DuPont analysis play in understanding and improving Sustainable Growth Rate?
It analyzes the return on equity components
ExplanationDuPont analysis dissects the components of return on equity to enhance understanding and improvement of SGR.
#15
In finance, what does the term 'residual income' refer to in the context of Sustainable Growth Rate?
The income earned after deducting a minimum required return
ExplanationResidual income is the income left after deducting a minimum required return.