1. What is Sustainable Growth Rate?

Sustainable Growth Rate (SGR) is the maximum rate at which a company can grow its sales, earnings, and dividends without having to increase financial leverage. It represents the growth a company can achieve using its retained earnings while maintaining a constant debt-to-equity ratio.

2. How Does the Calculator Work?

The calculator uses the Sustainable Growth Rate formula:

Where:

• \( ROE \) — Return on Equity (net income divided by shareholders' equity)
• \( plowback \) — Plowback Ratio (1 - dividend payout ratio)
• \( SGR \) — Sustainable Growth Rate

Explanation: The formula calculates how fast a company can grow using its internal resources without needing external financing.

3. Importance of SGR Calculation

Details: SGR helps companies plan their growth strategies, determine appropriate dividend policies, and assess whether current growth rates are sustainable without additional debt or equity financing.

4. Using the Calculator

Tips: Enter ROE as a decimal (e.g., 0.15 for 15%) and plowback ratio as a decimal between 0 and 1 (e.g., 0.6 for 60% retention rate).

5. Frequently Asked Questions (FAQ)

Q1: What is a good sustainable growth rate?
A: A good SGR varies by industry, but generally, rates above industry averages while maintaining financial stability are considered favorable.

Q2: How does SGR differ from actual growth rate?
A: SGR represents the maximum sustainable growth, while actual growth rate may be higher (requiring external financing) or lower (indicating underutilization of resources).

Q3: What if a company grows faster than its SGR?
A: Growth exceeding SGR typically requires external financing through debt or equity issuance, which may increase financial risk.

Q4: Can SGR be negative?
A: Yes, if ROE is negative (company is losing money), SGR will also be negative, indicating the company cannot sustain growth without external support.

Q5: How often should SGR be calculated?
A: SGR should be calculated regularly (quarterly or annually) to monitor the company's sustainable growth capacity and adjust strategies accordingly.