Problem #7 Medifast a. Calculate Medifasts sustainable growth rate for each year, from 2006 2010. b. During the 2006-2010 period, was Medifast experiencing a fast or slow growth problem, and what impact would this have had in the firms cash balances? c. What did Medifast do to improve its sustainable growth rate during this period. Beyond simply mentioning whether a ratio increased or decreased, explain what might cause the change the ratio. d. Referring to 2010 only: i. What value for the profit margin would have brought Medifast into balanced growth? ii. What value for asset turnover would have brought Medifast into balanced growth? iii. What value for financial leverage would have brought Medifast into balanced growth? Additionally, what % of assets was financed with equity given the leverage ratio of 1.6, and what % of assets would have been financed with equity given your leverage ratio consistent with balanced growth?

2008 2009 2010 Profit margin (%) Retention ratio (%) Asset turnover (X) Financial leverage (X) Growth rate in sales (%) 2006 6.00 99.50 1.33 1.61 46.80 2007 7.00 100.00 2.02 1.69 84.60 4.60 100.00 1.92 1.57 13.10 5.20 100.00 2.07 1.57 25.90 7.20 100.00 2.64 1.64 57.10