Sustainable Growth Rate Calculator
Calculate the Sustainable Growth Rate (SGR) to determine how fast a company can grow without needing additional external financing. This calculator helps assess a company's growth potential and financial health.
Financial Ratios
Alternative Calculation (Optional)
Sustainable Growth Rate
SGR (ROE × Retention):
0.00%
Annual Growth Rate:
0.00%
Growth Potential:
N/A
Growth Analysis
Financing Gap:
0.00%
External Financing Needed:
N/A
Growth Strategy:
N/A
Financial Health
Profitability Level:
N/A
Retention Policy:
N/A
Overall Assessment:
N/A
Understanding Sustainable Growth Rate
The Sustainable Growth Rate (SGR) represents the maximum rate at which a company can grow its sales and assets without needing to raise additional equity capital or increase its debt load. It's a critical metric for assessing whether a company's growth plans are realistic and sustainable.
SGR Formula
Basic Formula
- SGR = ROE × (1 - Dividend Payout Ratio)
- SGR = ROE × Retention Ratio
- Retention Ratio = 1 - Dividend Payout Ratio
- Expressed as a percentage
Alternative Formula
- SGR = (Net Income / Equity) × Retention Ratio
- SGR = Profit Margin × Asset Turnover × Equity Multiplier × Retention Ratio
- More comprehensive calculation
- Includes operational efficiency
SGR Interpretation
Growth Rate Benchmarks
Understanding SGR ranges and implications
High SGR (15%+)
- Strong profitability
- Effective reinvestment
- Sustainable high growth
- Attractive for investors
Moderate SGR (8-15%)
- Balanced growth approach
- Reasonable profitability
- Stable financial position
- Manageable expansion
Low SGR (<8%)
- Limited growth potential
- Low profitability or retention
- May need external financing
- Focus on efficiency improvement
Negative SGR
- Unsustainable operations
- Net losses
- Requires immediate attention
- Potential financial distress
Key Components of SGR
| Component | Formula | Impact on SGR | Improvement Strategies |
|---|---|---|---|
| Return on Equity | Net Income / Equity | Direct multiplier effect | Increase profitability, optimize capital structure |
| Retention Ratio | 1 - Dividend Payout | Direct multiplier effect | Reduce dividend payouts, retain more earnings |
| Profit Margin | Net Income / Sales | Increases ROE | Improve pricing, reduce costs |
SGR vs Actual Growth
When Actual > SGR
- Requires external financing
- Increases financial risk
- May dilute shareholder value
- Need debt or equity issuance
When Actual < SGR
- Unused growth capacity
- Accumulating excess cash
- Potential inefficiency
- Consider dividend increases
Industry Variations
High Growth Industries
- Technology: 20-30% SGR
- Biotech: 15-25% SGR
- E-commerce: 18-28% SGR
- High ROE and retention
Mature Industries
- Utilities: 3-8% SGR
- Consumer staples: 5-10% SGR
- Industrial: 6-12% SGR
- Stable but lower growth
SGR Limitations
Assumptions
- Constant ROE
- Stable retention ratio
- No external financing
- Linear growth pattern
External Factors
- Economic conditions
- Industry competition
- Regulatory changes
- Market saturation
Strategic Implications
Growth Strategies
- Increase ROE through efficiency
- Optimize dividend policy
- Strategic acquisitions
- Market expansion
Financing Decisions
- Debt vs equity trade-offs
- Optimal capital structure
- Share repurchase programs
- Dividend sustainability
Key Takeaways for Sustainable Growth Rate Calculator
- Sustainable Growth Rate = ROE × Retention Ratio measures maximum growth without external financing
- Higher ROE and retention ratios lead to higher sustainable growth rates
- SGR assumes constant profitability and no changes in financial policy
- If actual growth exceeds SGR, the company needs external financing
- SGR varies significantly by industry, with technology companies often having higher rates
- Use SGR to assess whether growth targets are realistic and sustainable
- Companies can increase SGR by improving profitability or reducing dividend payouts
- SGR is a key metric for value investors evaluating growth potential