The ABC company's ratios for the years 2001 - 2005 were as follows:
2001 2002 2003 2004 2005
Profit Margin (%) 22.9 16.5 23 24 25
Retention (%) 100 100 100 95 95
Asset turnover (x) 0.3 0.3 0.5 0.5 0.5
Financial leverage (x) 1.4 1.5 1.5 1.7 1.7
Growth rate in sales (%) 10.4 7.0 8.2 18.2 22.6
a. What were the annual sustainable growth rates 2001- 2005?
b. Did ABC have a growth problem during the period? Please explain.
c. In 2006 the profit margin is expected to be the same as in 2005 and the company plans to pay 15% of its profit as cash dividend to the shareholders. Asset turnover ratio will remain as in 2006 but in light of the positive projections for the economy management plans to increase the financial leverage to 1.9 . What will the 2006 sustainable growth be? Which change will be more dominant?
d. What does this result imply to the company in the short and in the longer run?