The correct answer is C. retention rate and the return on equity.
The sustainable growth rate of a firm is the maximum rate at which a firm can grow without having to raise additional equity capital. It is calculated as the product of the retention rate and the return on equity.
The retention rate is the proportion of net income that a firm reinvests in the business. The return on equity is the rate of return that a firm earns on its equity capital.
The sustainable growth rate is a useful tool for managers to assess the long-term growth potential of their firms. It can also be used to evaluate the financial performance of firms.
A high sustainable growth rate indicates that a firm is well-positioned for long-term growth. A low sustainable growth rate indicates that a firm may need to raise additional equity capital in order to grow.
The following are the explanations of each option:
- Option A: return on assets and the return on equity. This is not the correct answer because the sustainable growth rate is not a function of return on assets.
- Option B: dividend payout ratio and leverage. This is not the correct answer because the sustainable growth rate is not a function of dividend payout ratio or leverage.
- Option C: retention rate and the return on equity. This is the correct answer because the sustainable growth rate is calculated as the product of the retention rate and the return on equity.
- Option D: net profit margin and total sales. This is not the correct answer because the sustainable growth rate is not a function of net profit margin or total sales.