We appreciate your visit to The newspaper reported last week that Bennington Enterprises earned 34 16 million this year The report also stated that the firm s return on equity. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
The earnings growth rate of Bennington Enterprises is 10.5 percent. This calculation takes into account the firm's net income, return on equity, and retention ratio.
To calculate the earnings growth rate, we first need to determine the amount of earnings retained by the firm. Since Bennington retains 70 percent of its earnings, the retained earnings can be calculated as follows: Retained Earnings = Net Income * Retention Ratio.
In this case, the net income of Bennington Enterprises is reported as $34.16 million. Therefore, the retained earnings would be: Retained Earnings = $34.16 million * 0.70 = $23.912 million.
Next, we can calculate the growth rate using the formula: Growth Rate = Retained Earnings / Equity. Here, equity refers to the shareholders' equity, which is the amount of the firm's assets minus its liabilities. Since the return on equity is given as 15 percent, we can use the formula: Equity = Retained Earnings / Return on Equity.
Substituting the values, we have: Equity = $23.912 million / 0.15 = $159.413 million.
Finally, we can calculate the growth rate: Growth Rate = Retained Earnings / Equity = $23.912 million / $159.413 million ≈ 0.105, or 10.5 percent.
Therefore, the earnings growth rate of Bennington Enterprises is approximately 10.5 percent.
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To calculate the firm's earnings growth rate, the sustainable growth rate formula is used: g = ROE times b, where g is the growth rate, ROE is return on equity, and b is the retention ratio. With a ROE of 15% and a retention ratio of 70%, the growth rate is 10.5%.
The student asked to calculate the firm's earnings growth rate, given that Bennington Enterprises earned $34.16 million this year, retains 70% of its earnings, and has a return on equity (ROE) of 15%. To find the earnings growth rate, we can use the sustainable growth rate formula which is given by,
g = ROE times b,
where g is the growth rate of earnings, ROE is the return on equity, and b is the retention ratio (the proportion of earnings that is not paid out as dividends). Since the company retains 70% of its earnings, b is 0.70. Inserting the values,
g = 0.15 times 0.70,
The earnings growth rate g is thus 10.5%.
