Unit 7

• Growth rate (g) = (Ending equity - beginning equity)/beginning equity = Change in equity/beginning = E/Ebeg
• Change in Equity (E) = Net income * Retention = NI * RR
• Growth rate (g) = E/Ebeg = NI/Ebeg * RR = g - Sustainable sales growth rateRate at which a firm can growsales based on the retention of profits in the business
• Return on equity (ROE) = Net profit margin * Asset turnover * Equity mulitplier
• Growth rate (g) = NI/NS * NS/TA * TA/CE * RR
• Growth rate (g) = Operating Perfomance * Financial Policies , g = ROA * FP - Financial policies refers to the product of a firms’ financial leverage and the retention rate: TA/CE * RR
• Financing capital needed (FCN) - the amount of capital needed to finance the project.
• Additional funds needed (AFN) - The amount of additional funds needed to complete the project.
• Additional funds needed = Required increse in assets - Spontaneously generated funds - Increase in Retained Earning
• Additional funds needed:

  
• TA = Total assets; NS = Net sales; ∆NS = Change in net sales between next year and the current year; AP = Accounts payable; AL = Accrued liabilities; RR = Retention rate
• Percent of sales method - A method of calculating gross profit that uses the percentage of sales revenue / Make projections based on the assumption that certain costs and selected balance sheet items are best expressed as a percentage of sales
• Constant ratio method - A method of calculating the average rate of reaction by measuring the amount of product formed at regular intervals / Variant of the percent of sales method that projects selected cost and balance items at the same growth rate as sales
• SYSTEMATIC FORECASTING

  
• WACC is the weighted average cost of capital, which is the average cost of capital for a firm using all its sources of finance
• notes payable = bank loan
• common equity = common stock + retained earnings
• EVA is a measure of the profitability of a business that takes into account the cost of capital and the interest paid on debt