Sustainable Growth Rate Calculator
Calculate the maximum growth rate a company can achieve without external funding
Calculate Sustainable Growth Rate
Calculation Method
Financial Components
Company's annual net income
Total dividends paid to shareholders
Total shareholders' equity
SGR Calculation Results
Growth Analysis
Example: Company Alpha SGR Calculation
Company Alpha Financial Data
Net Income: $2,000,000
Dividends Paid: $1,000,000
Shareholders' Equity: $10,000,000
Step-by-Step Calculation
Step 1 - Retention Ratio: 1 - ($1,000,000 ÷ $2,000,000) = 50%
Step 2 - ROE: $2,000,000 ÷ $10,000,000 = 20%
Step 3 - SGR: 50% × 20% = 10%
Result: Company Alpha can grow sustainably at 10% annually
SGR Components
Retention Ratio
Percentage of earnings retained
1 - (Dividends ÷ Net Income)
Return on Equity
Profitability on equity
Net Income ÷ Shareholders' Equity
SGR Formula
Growth without external funding
Retention Ratio × ROE
Interpreting SGR
Higher SGR indicates better growth potential
Compare SGR to GDP growth rate
Used in valuation models (DDM, DCF)
Assesses financial efficiency
Measures self-funded growth capacity
Understanding Sustainable Growth Rate
What is Sustainable Growth Rate?
The Sustainable Growth Rate (SGR) is the maximum growth rate a company can achieve without issuing new equity or taking on additional debt. It represents the growth rate that can be financed entirely through retained earnings.
Why is SGR Important?
- •Assess company's self-funded growth potential
- •Compare growth capabilities across companies
- •Input for valuation models (DDM, DCF)
- •Evaluate financial efficiency and planning
SGR Formula Breakdown
SGR = Retention Ratio × ROE
Retention Ratio = 1 - (Dividends ÷ Net Income)
ROE = Net Income ÷ Shareholders' Equity
Key Insights
- High Retention: More earnings reinvested, higher SGR
- High ROE: Efficient use of equity, better SGR
- Balance: Companies must balance dividends and growth
- Limitations: Less useful for high-growth companies
Note: SGR assumes constant financial ratios and may not reflect market conditions