CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

An analyst has gathered the following information about a company: net profit margin of 15%, asset turnover ratio of 0.267, equity multiplier of 4.5, dividend payout ratio of 30%. What is the company's growth rate?
A. 18.6%
B. 14.8%
C. 12.6%
Explanation: g = (retention rate)(ROE) ROE = (net profit margin)(asset turnover)(equity multiplier) = (.15)(0.267)(4.5) = 0.180
g = (1 - .3)(0.180) = (.7)(0.18) = 0.126 or 12.6%

User Contributed Comments 5

User Comment
jerylewis What is the equity multiplier? How does that relate to the financial leverage ratio? Thanks
bahodir Equity Multiplier = Assets / Equity
Financial Leverage Ratio = Liabilities / Equity

Equity Multiplier = 1 + Financial Leverage Ratio
mrdjb Bahodir,
Financial Leverage = Avg Total Assets/Avg Total Eq.

Liablities/Avg Total Eq is a total debt to equity ratio
azramirza G=RR*ROE RR=1-Dividend payout....70*.15*0.267*4.5
cfastudypl you may wish to use a faster approach such as: 0.15*0.267*4.5*(1-0.3)=0.1262*100=12.6158 to I decimal place = 12.6
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