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Arthur Young Sustained Growth Analysis Model
Arthur Young Sustained Growth Analysis
Model, created by Arthur Young & Co consultant consists on a formula the
uses several variables of economic and financial scope and that seeks to
show the company’s financial performance and provide the managers useful
information for financial planning and decision taking and for strategy
evaluation to increase the company’s sustained growth rate.
How to use the model:
The instructions to use the model are the
following:
1. Calculate the Formula for the analyzed
company, which is given by the following function:
g = b x (1 – tax rate) x [ROA +
(Liabilities/Equity) x (ROA – average interest rate)]
in which:
g = sustained growth rate
b = retention ratio = (profits after
dividends) / dividends
ROA = Return on Assets
2. In the case the company uses different
types of debt with significantly different tax rates, can be useful
expand the formula as a way to show the individual impact of each debt
category. For that should be added to the last term of the formula, so
many debt categories as necessary.
3. At last can be used for the decision
taking and for the analysis elaboration. For that should be considered
the formulas’ individual components to understand each one of the
options or to evaluate the changes impact on its variables.
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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