Problem
Davidson, Inc. has the following ratios for the years 2014 through 2018:
|
|
2014
|
2015
|
2016
|
2017
|
2018
|
|
Profit margin (%)
|
11.4
|
12.3
|
13.5
|
15.5
|
16.7
|
|
Retention ratio (%)
|
91.3
|
91.9
|
92.8
|
92.2
|
86.6
|
|
Asset turnover(X)
|
1.25
|
1.14
|
1.11
|
1.00
|
0.97
|
|
Assets (end of year, millions)
|
$2,436
|
3,118
|
3,861
|
4,923
|
5,483
|
|
Equity (end of year, millions)
|
1,406
|
1,756
|
2,233
|
2,958
|
3,219
|
|
Growth rate in sales (%)
|
17.8
|
16.4
|
21.4
|
14.0
|
8.5
|
|
Sustainable growth rate (%)
|
|
|
|
|
|
i. Calculate Davidson's sustainable growth rate for each year.
ii. Did Davidson, Inc. have a growth problem?
iii. What the company could have done to cope with its sustainable growth problems?