Sustainable Growth Rate Calculator
Calculate the maximum growth rate a company can sustain using only internal financing.
Enter ROE and dividend payout ratio to find the SGR.
Sustainable Growth Rate (SGR)
The Sustainable Growth Rate is the maximum rate at which a company can grow its sales, earnings, and dividends using only its internal resources — without taking on new debt or issuing new equity.
Formula:
SGR = ROE × Retention Ratio
Retention Ratio = 1 - Dividend Payout Ratio
| Variable | Meaning |
|---|---|
| ROE | Return on Equity (Net Income / Shareholders’ Equity) |
| Retention Ratio | The fraction of earnings kept (not paid as dividends) |
| Dividend Payout | The fraction of earnings paid as dividends |
Example:
- ROE = 20%, Dividend Payout Ratio = 30%
- Retention Ratio = 1 - 0.30 = 0.70
- SGR = 20% × 0.70 = 14%
The company can grow at 14% per year purely from its own profits.
What happens if a company grows faster than its SGR? It must do one or more of:
- Take on additional debt (increases leverage)
- Issue new shares (dilutes existing shareholders)
- Reduce its dividend payout to retain more earnings
- Improve its ROE through better margins or asset efficiency
What happens if actual growth is below SGR? Excess cash builds up. The company might:
- Increase dividends
- Buy back shares
- Make acquisitions
SGR and the DuPont framework:
A more detailed version decomposes ROE:
SGR = Net Margin × Asset Turnover × Equity Multiplier × Retention Ratio
This reveals which lever drives SGR: profitability, efficiency, leverage, or payout policy.
Limitations:
- Assumes constant ROE and payout ratio
- Doesn’t account for market conditions or competitive pressure
- Best used as a planning benchmark, not a hard ceiling