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Sustainable Growth Rate Calculator.

Calculate sustainable growth from retention and return on equity.

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Sustainable growth rate: 9.00% %

Sustainable growth rate

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FAQs

How does the sustainable growth rate calculator work?

Enter the requested values to receive a deterministic result. No live market, tax, or jurisdiction data is inferred.

Use Cases

Financial Planning and Strategy

Helps companies set realistic growth targets based on internal profitability and dividend policy, avoiding over-reliance on external capital.

Example: A firm with ROE of 12% and retention ratio of 70% can sustain growth of 8.4% without new equity.

Investor Analysis

Investors use SGR to evaluate whether a company's growth is sustainable and to assess dividend sustainability.

Example: If a company's actual growth exceeds its SGR, it may signal future equity issuance or increased leverage.

Frequently Asked Questions

What is the sustainable growth rate (SGR)?
The sustainable growth rate is the maximum rate at which a company can grow its sales, earnings, and dividends using internally generated funds (retained earnings) without needing to issue new equity or increase financial leverage. It is calculated as ROE multiplied by the retention ratio (1 - dividend payout ratio).
How is the sustainable growth rate calculated?
The formula is SGR = ROE × Retention Ratio. ROE (Return on Equity) is net income divided by shareholders' equity. The retention ratio is the proportion of net income retained in the business, calculated as 1 minus the dividend payout ratio. For example, if ROE is 15% and retention ratio is 60%, SGR is 9%.
Why is the sustainable growth rate important for a company?
SGR helps management and investors understand the company's growth potential without relying on external financing. If a company grows faster than its SGR, it may need to issue new equity or increase debt, which can dilute ownership or raise financial risk. Conversely, growing below SGR may indicate underutilized internal resources.

Tips & Common Mistakes

Tips

  • Ensure ROE and retention ratio are based on the same period (e.g., annual figures) for accurate results.
  • Use the retention ratio (1 - dividend payout ratio) rather than the payout ratio directly in the formula.
  • Compare the calculated SGR with the company's actual growth rate to identify potential financing gaps.
  • Remember that SGR assumes the company maintains its current capital structure and profitability.

Common Mistakes to Avoid

  • Using the dividend payout ratio instead of the retention ratio in the calculation.
  • Using inconsistent time periods for ROE and retention ratio, leading to inaccurate SGR.
  • Assuming SGR is a guaranteed growth rate; it is an estimate based on current profitability and dividend policy.

Last updated: August 13, 2026