Enter the return on equity (ROE) and the retention rate into the calculator to determine the sustainable growth rate. The retention rate is equal to 1 minus the dividend payout ratio.
- Dividend Growth Calculator
- CAGR Calculator (Compound Annual Growth Rate%)
- Exponential Growth Calculator
- Internal Growth Rate Calculator
Sustainable Growth Rate Formula
The following equations are used to calculator the sustainable growth rate of a company.
SGR = (ROE) * RR
SGR = (ROE) * ( 1 – DPR )
ROE = Net Income / Equity
- Where SGR is the sustainable growth rate
- ROE is the return on equity
- RR is the retention rate
- DPR is the dividend payout ratio
Sustainable Growth Rate Definition
A sustainable growth rate is defined as the rate at which a business can re-invest capital back into the business without effecting the overall growth.
Sustainable Growth Rate Example
How to calculate a sustainable growth rate?
- First, determine the return on equity.
Calculate the total return on equity the company achieves on average.
- Next, determine the retention rate.
Calculate or determine the total retention rate.
- Finally, calculate the sustainable growth rate.
Use the formula above to calculate the sustainable growth rate.
A sustainable growth rate is the rate at which a company can re-invest capital back into it’s business while still retaining overall growth of the company.
The rate at which a company can grow is dependent on many factors, but the quickest way to increase expansion is through greater capital through investments or revenue. Typically early on in a business life cycle, most of the capital comes from investment.