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Sustainable Growth Rate Calculator

Find a company's sustainable growth rate.

How it is calculated

Both inputs are percentages. The tool multiplies return on equity by the share of profit kept in the business: SGR (%) = ROE × retention ÷ 100. ROE is net income divided by shareholders' equity; the retention ratio is one minus the dividend payout ratio, so a company paying out 40% of earnings has a retention of 60%.

ROE must not be negative, and retention must be between 0 and 100. Outside those ranges there is no result, so a loss-making company cannot be evaluated here. The result is shown with two decimals. This simple version assumes ROE and the payout policy stay constant and that no new equity is issued; it does not adjust for changes in debt ratio.

Worked example

A company earns a 15% return on equity and keeps 60% of its profits (paying 40% as dividends). Multiply: 15 × 60 ÷ 100 = 9.00%. On these assumptions, the company can grow equity and sales by about 9% a year without raising new share capital. If it raised the payout to 60% (retention 40%), the figure would fall to 6.00%.

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Common mistakes

  • Entering the payout ratio in the retention field. A 40% dividend payout means 60% retention.
  • Entering ROE or retention as decimals (0.15 and 0.6); both fields take percentages, so 0.15 would mean 0.15%.
  • Using return on assets or return on invested capital in place of return on equity.
  • Treating the result as a forecast. It is an upper limit under constant ROE and payout, not a prediction.
  • Trying a negative ROE for a loss-making firm; the tool returns no result for it.

Sources

About this calculator

The sustainable growth rate (SGR = ROE × retention ratio) estimates the fastest a company can grow its revenue using only internally generated equity, without issuing new shares or taking on additional debt beyond what current profitability supports. The retention ratio (1 − dividend payout ratio) is the share of earnings reinvested rather than paid out, so a highly profitable company that retains most of its earnings can sustain much faster growth than one that pays large dividends.

Equity research analysts use SGR as a sanity check on a company's growth forecasts — if a firm is growing well beyond its SGR, it's relying on new financing, which changes the risk picture — while corporate finance teams use it internally to plan how much growth is achievable before needing external capital. It's a standard metric alongside ROE and payout ratio in fundamental analysis and financial modelling.

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Comments (1)

  • Editorial team

    Use it as a ceiling, then compare it with a forecast. With a 15% return on equity, every 10 points of extra retention adds 1.5 points: 60% retention gives 9.00% and 70% gives 10.50%. If a forecast growth rate sits well above the figure, the plan depends on new equity, more debt or better returns. What gap do you find when you compare the company you follow with its own forecast?

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