Management and Organizational Studies 1023A/B Lecture Notes - Lecture 4: Cash Flow, Asset Turnover, Profit Margin

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Christina Maco

Document Summary

Cash dividend/net income: retention ratio or plowback ratio: retained earnings as percentage of net income. External financing and growth: all other things remaining the same, higher rate of growth in sales or assets, the greater the need for external financing. Increase in total assets = a x g. S - previous year"s sales p - profit margin. E - total equity g - growth rate in sale. Addition to retained earning = p(s)(r) x (1+g) = increase in total assets - addition to retained earning. = -p(s)(r) + [a - p(s)(r)] x g. Internal growth rate: growth rate a firm can maintain with only internal financing: the point where efn is zero. Increase in assets is exactly equal to increase in retained earnings: set efn = 0. Efn = -p(s)(r) + [a - p(s)(r)] x g g = p(s)(r) / [a-p(s)(r)] Efn* = increase in total assets - addition to retained earnings - new borrowing.