The correct answer is: B. sustainable growth rate.
The sustainable growth rate is the maximum rate at which a company can grow without having to raise external capital. It is calculated by dividing the return on equity (ROE) by the retention ratio. The ROE is a measure of how efficiently a company uses its equity to generate profits, and the retention ratio is the percentage of profits that a company reinvests in the business.
A high ROE indicates that a company is efficient at generating profits, and a high retention ratio indicates that a company is willing to reinvest its profits in the business. This means that a company with a high ROE and a high retention ratio has the potential to grow at a high rate without having to raise external capital.
However, there are a number of factors that can limit a company’s sustainable growth rate, such as the availability of capital, the level of competition, and the regulatory environment. Therefore, the sustainable growth rate is just an estimate of the maximum rate at which a company can grow, and it is important to consider all of the factors that could affect a company’s growth before making any decisions.
The other options are incorrect because they do not measure a company’s ability to grow from internal sources.
- Return on assets (ROA) is a measure of how efficiently a company uses its assets to generate profits. It is calculated by dividing net income by total assets.
- Adjusted EPS is a measure of a company’s earnings per share that has been adjusted for certain factors, such as extraordinary items.
- Return on equity (ROE) is a measure of how efficiently a company uses its equity to generate profits. It is calculated by dividing net income by shareholders’ equity.