Bob Lawson is the president of his company; his CFO is Mark Ziegler. Like many entrepreneurs, Bob is more concerned about the big picture and leaves the day-to-day accounting details up to Mark. Bob reviews the financial statements regularly; however, Mark would like to help him understand how to make better use of the company's financial statements to gauge the changes in his business and plan for the future. Even though Mark generates all statements in terms of dollars and percents (common-size statements), Bob ignores the common-size statements. The two have agreed to meet next week.
Mark plans to begin his coaching with the following topics:
Making comparisons using standardized financial statements
Calculating and understanding performance ratios
Determining the company's profitability and growth
Drawbacks associated with financial statement comparisons
If Mark wanted to help Bob improve the company's ability to grow, how would you summarize the effect of the retention ratio vs. the dividend payout ratio on that goal?
(Points : 1)
All else being equal, a higher retention ratio will help the company's ability to sustain growth through internal financing.
All else being equal, a higher dividend payout ratio will help the company's ability to sustain growth through internal financing.
All else being equal, a higher retention ratio will hurt the company's ability to sustain growth through internal financing.
There is no relationship between these ratios and the firm's ability to grow.