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Firms With High Sustainable Growth

Apple’s decision to initiate a dividend highlights the trade-off between distributing profits to shareholders and preserving excess cash to fund future growth. Dividends are normally paid by more mature companies that are generating free cash flow and no longer need as much money to fund expansion and growth. The sustainable growth rate is a common calculation that examines the profitability of a firm and how the dividend payment may impact its growth potential. If a firm does not make significant changes to its assets or financial structure, the sustainable growth can be calculated by multiplying the return on equity by the percentage of earnings retained by the firm.

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