You have been hired as a junior financial analyst by a major, international consulting firm.

You have been hired as a junior financial analyst by a major, international consulting firm. For your first assignment, you have been asked by a senior financial analyst to demonstrate your skills by assessing the performance of a publicly trading company; preferably one with inventories and receivables. The senior analyst expects you to evaluate at least two years' worth of financial statements, but you know three years would be better in order to really understand the financial health of your subject company. Each week over the next five weeks, the senior analyst expects you to complete and submit at least one task associated with this assignment and to regularly discuss what you have been learning with you other junior associates, as they will be preforming the same project as you, albeit with a different company, and most likely in a different industry.   

Question Text

How does a company assess its sustainable growth rate (SGR)?

·        How does a firm use the SGR in decision making?

·        What are the consequences for a firm that grows a higher rate than its SGR?

·        What are the consequences for a firm that grows at a lower rate than its SGR?

Consider the following ideas to include in your answer:

·        Which variables are used in calculating the SGR?

·        How does a firm use the SGR in choosing a financing option?

·        How does a firm finance a growth that is higher than its SGR?

·        What is the opportunity cost for a firm that grows at a lower rate than its SGR?