Explanation

The sustainable growth rate (SGR) formula is:

$\text{SGR} = \text{ROE} \times (1 - \text{Dividend Payout Ratio})$

Where:

• ROE = Return on Equity
• Dividend Payout Ratio = Dividends / Net Income

Analysis of each option:

• A: Asset turnover - A decrease in asset turnover would decrease ROE (since ROE = Profit Margin × Asset Turnover × Equity Multiplier), which would decrease SGR
• B: Financial leverage - A decrease in financial leverage (equity multiplier) would decrease ROE, which would decrease SGR
• C: Dividend payout ratio - A decrease in dividend payout ratio increases the retention ratio (1 - Dividend Payout Ratio), which directly increases SGR

Therefore, only a decrease in dividend payout ratio will increase the sustainable growth rate. The correct answer is C.