A theoretical measure of the strength of a company is called its sustainable growth rate.Select one:TrueFalse

The statement "A theoretical measure of the strength of a company is called its sustainable growth rate" is True.

Explanation:

The sustainable growth rate (SGR) is defined as the maximum rate at which a company can grow its sales, earnings, and dividends while maintaining its current financial policies and without having to raise external capital. It is a crucial metric for businesses as it reflects how well a company can grow while keeping its financial health stable. SGR is typically calculated using the formula:

$\text{SGR} = \text{Return on Equity} \times \text{Retention Ratio}$

Where:

• Return on Equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders' equity.
• Retention Ratio is the portion of net earnings not paid out as dividends but retained by the company for reinvestment.

This growth rate helps investors and management understand the sustainable path of growth and plan accordingly, marking it as a theoretical measure of a company’s strength. Thus, the statement is true.