Estimate the return on equity and the plowback ratio using the financial statement data you have collected.

Sustainable Growth:

Again, you will use the constant-growth dividend discount model to estimate your company’s expected rate of return. This time, however, you will estimate the growth rate by calculating the sustainable growth rate.

   Data Required:

  • Most recently available financial statement information: Book Value of Equity (BE), Net Income (NI), Earnings per Share (use Diluted EPS Excluding Extraordinary Items), and Dividend per Share (Note that these last three must be from an annual income statement.  You are collecting dividend per share again to make sure that it matches the time period used for the EPS).
  • These can be found at Yahoo Finance Canada (https://ca.finance.yahoo.com/), the Toronto Stock Exchange (http://www.tmxmoney.com/en/index.html), SEDAR  (www.sedar.com), or on the company’s website.
  • The April 30, 2022 closing stock price for your company.

Calculations:

  1. Estimate the return on equity and the plowback ratio using the financial statement data you have collected.
  2. Estimate the sustainable growth rate using the return on equity and the plowback ratio.
  3. Estimate the total dividends that will be paid between May of this year and April of next year, assuming that dividends grow at the sustainable growth rate. Use your previously calculated dividend for May 2021 to April 2022 from the Historical Growth section as your base.
  4. Calculate the firm’s expected rate of return using your calculated expected dividend, sustainable growth rate, and the unadjusted price for April 30 of this year.

Report the data and results for these two sets of calculations on the DDM Template (or you can create your own). Make sure you include sources for your data and show the formulas you used (using variable names) as well as the calculations (using your numbers). You will have to convert your document to Portable Document Format (PDF) before you submit it to PEAR. This ensures that everyone will be able to access and read it. Make sure you check your file after the conversion – the conversion has the same effect as printing the document and the results are not always what you expect. You may find that you have to go back and adjust your formatting. It is your responsibility to make sure that you have properly uploaded the correct file to PEAR.