Calculation of growth rate?

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This discussion tackles how to calculate the growth rate when given Return on Equity (ROE) and dividend payout percentage. While initially appearing to require previous year's ROE, the consensus reached is that the growth rate can be calculated using the formula: ROE multiplied by the retention ratio (100% - dividend payout %). For the given figures of 15% ROE and 30% dividend payout, the calculated growth rate is 10.5%.

CA Abhishek Singh

CA Abhishek Singh (Querist)
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06 May 2023 ROE 15% dividend paid 30%
Calculate the growth rate ?

Can anyone solve this ??

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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06 May 2023 For calculating growth rate this year ROE has to be compared with last year ROE.
Higher dividend might have been paid out of earlier year profit

CA Abhishek Singh

CA Abhishek Singh (Querist)
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07 May 2023 This is the exact question came in IBBI valuation exam. No other information.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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07 May 2023 It can't be calculated without the previous year ROE. It's a tricky question.

CA Abhishek Singh

CA Abhishek Singh (Querist)
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23 May 2023 I got the answer
Growth rate ( equity) = ROE * retention ratio

Retention ratio = 100-30=70%
Growth rate = 15%*70%= 10.5%

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