Lauren Turk is reviewing Francesca Toy's financial statements in order to estimate its sustainable growth rate. Using the information presented in Exhibit:

a. (1) Identify and calculate the three components of the DuPont formula.
(2) Calculate the ROE for 2011, using the three components of the DuPont formula.
(3) Calculate the sustainable-growth rate for 2011.
b. Turk has calculated actual and sustainable growth for each of the past four years and finds in each year that its calculated sustainable-growth rate substantially exceeds its actual growth rate. Cite two courses of action (other than ignoring the problem) that Turk should encourage Francesca Toy to take, assuming the calculated sustainable-growth rate continues to exceed the actual grow thrate.

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2010 2011e Change (%) Income Statement Revenue Cost of goods sold Selling, general, and administrative Depreciation Goodwill amortization $4,750 $2,400 1,400 180 10 $ 760 20 740 265 $ 475 1.79 265 $5,140 $2,540 1,550 210 10 S 830 25 S 805 295 510 $1.96 260 7.6 Operating income Interest expense Income before taxes 8.4 Income taxes Net income Earnings per share Average shares outstanding (millions) Balance Sheet Cash Accounts receivable Inventories Net property, plant, and equipment Intangibles 8.6 $400 680 $570 $ 800 400 $ 700 600 870 $ 530 $3,100 $ 600 S 300 $ 900 $2,200 $3,100 8.46 $ 0.60 Total assets Current liabilities Long-term debt $2,950 550 $850 $2,100 $2,950 7.92 $0.55 Total liabilities Stockholders equity Total liabilities and equity Book value per share Annual dividend per share