Financial Sustainable Growth Rate and Financial Ratios: A Research on Borsa İstanbul Manufacturing Firms

Abstract

In this study, it was aimed to examine the relationship between the deviation from financial sustainable growth rate (SGR) and the financial ratios. In this context, actual growth rate (AGR) and Higgins (1977) SGR were determined over the 3-year average of 2013-2015 period of 69 publicly traded manufacturing companies listed on the Borsa İstanbul. Correlation analysis and univariate cross-section regression analysis methods were utilized to investigate the effect of AGR-SGR difference on the return on assets, return on equity, price/earnings ratio, debt ratio, current ratio and to determine the most influential component of SGR. The 3-year average SGR of 69 firms examined was 10%, while the SGR for the 46 over-growing companies was 6% and for 23 undergrowing companies SGR was 18%. According to the findings of the analyses a negative relationship between the AGR-SGR and the return on asset and return on equity was found and it was seen that the most influential component of SGR was profit margin. Overall it was concluded that over-growing firms operated with lower SGR due to their low profitability while high profitability of under-growing firms led to high SGR.