Calculate annual growth rate
Originally posted in Equity Research but didn't get any bites.
I was given a question on an exam that asked to calculate the annual growth rate using the follow information:
Annual dividend = .75cents
EPS = $3
P/E = 13
RoE = 22%
Couldn't figure this out. Any idea? Thanks in advance.
Sustainable Growth Rate = ROE * (1-Dividend Payout Ratio) = 22% * (1-(.75/3)) = 16.5%
Note: 1-Dividend Payout Ratio = Retention Ratio
This assumes future investment prospects generate same ROE as base ROE which is complete clown assumption:
1. Base ROE has all sorts of accounting nonsense in it
2. Prospects change over time
Thanks. Formula was never provided in class
Which uni?
Mollitia itaque laudantium quas et molestias ut et. At ut praesentium quos in. Et voluptatibus odio reprehenderit nobis magni ex excepturi. Quo omnis rerum nihil eos fugit blanditiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...