Sustainable Growth Rate — Smart Financial Analysis
Calculate the maximum growth rate a company can achieve without external financing. SGR = ROE × (1 - Dividend Payout Ratio).
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The maximum rate a company can grow sales/earnings using only internal funds (retained earnings). Growing faster than SGR depletes cash, requiring loans or equity issuance. Higher dividends = lower retention ratio = lower SGR. The company must find external financing: issue debt, issue equity, or improve efficiency.
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Why: The maximum rate a company can grow sales/earnings using only internal funds (retained earnings). SGR = ROE × (1 - Dividend Payout Ratio). Growing faster requires external finan...
How: Enter Return on Equity (%), Dividend Payout Ratio (%), Net Income ($) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
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📋 Quick Examples — Click to Load
📊 SGR Components
ROE, retention ratio, and resulting SGR
🍩 Retained vs Dividends
Earnings allocation breakdown
📈 Revenue at SGR (5 Years)
Projected revenue growth at sustainable rate
🏭 SGR by Industry
Typical SGR ranges by sector
Sustainable Growth Rate
Maximum organic growth without external financing. ROE 15.00%, Retention 70.00%.
For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
Sustainable Growth Rate analysis is used by millions of people worldwide to make better financial decisions.
— Industry Data
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— NBER Research
The average American makes 35,000 financial decisions per year—many can be optimized with calculators.
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The Sustainable Growth Rate is a fundamental corporate finance concept that answers: how fast can a company grow without borrowing money or issuing stock? By combining Return on Equity with the retention ratio, SGR reveals a company's organic growth capacity. The S&P 500 average SGR of ~8-10% reflects the balance between profitability and dividend distribution.
Sources: CFA Institute, Investopedia, McKinsey & Company, Damodaran (NYU Stern).
Key Takeaways
- • SGR = ROE × (1 - Dividend Payout Ratio) — the maximum growth without external financing
- • Growing faster than SGR requires debt or equity issuance
- • Higher dividends reduce SGR; lower payouts boost organic growth capacity
- • DuPont: ROE = Profit Margin × Asset Turnover × Financial Leverage — improve any to raise SGR
Did You Know?
How Does SGR Work?
The Formula
SGR = ROE × Retention Ratio. ROE = Net Income / Shareholders Equity. Retention = 1 - Dividend Payout Ratio. Together they define the ceiling for organic growth.
Above vs Below SGR
Above SGR: cash depletes, need external financing. Below SGR: excess cash accumulates for dividends, buybacks, or M&A.
Levers to Increase SGR
Raise ROE (margin, turnover, leverage) or increase retention (cut dividends). Each has trade-offs — leverage adds risk, dividend cuts may upset shareholders.
Expert Tips
SGR by Industry
| Industry | Typical SGR | Characteristics |
|---|---|---|
| Technology | 15-25% | Low dividends, high ROE |
| Consumer Staples | 3-8% | High dividends, mature |
| Healthcare | 8-15% | Moderate payouts |
| Utilities | 3-8% | High dividends, capital-intensive |
| S&P 500 | ~8-10% | Market average |
Frequently Asked Questions
What is sustainable growth rate?
The maximum rate a company can grow sales/earnings using only internal funds (retained earnings). SGR = ROE × (1 - Dividend Payout Ratio). Growing faster requires external financing (debt or equity).
Why is SGR important?
Growing faster than SGR depletes cash, requiring loans or equity issuance. Growing slower means excess cash accumulating. SGR helps management balance growth ambitions with financial stability.
What is a good SGR?
Depends on industry. Tech: 15-25%. Consumer staples: 3-8%. Healthcare: 8-15%. S&P 500 average: ~8-10%. Higher SGR means more growth potential without external financing.
How does dividend policy affect SGR?
Higher dividends = lower retention ratio = lower SGR. A company with 20% ROE and 50% payout has SGR of 10%. Same ROE with 20% payout has SGR of 16%. Dividend cuts can boost growth capacity.
What if actual growth exceeds SGR?
The company must find external financing: issue debt, issue equity, or improve efficiency. Sustained growth above SGR without financing erodes the balance sheet and can lead to financial distress.
How does SGR relate to ROE?
SGR = ROE × Retention. DuPont decomposition: ROE = Profit Margin × Asset Turnover × Financial Leverage. Improving any of these components increases SGR. High leverage boosts ROE but adds risk.
Key Statistics
Official Data Sources
⚠️ Disclaimer: This calculator is for educational purposes only. SGR assumes constant financial ratios and stable conditions. Past performance does not guarantee future results. Not financial advice. Consult a professional for business decisions.
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