Sustainable Growth Rate (SGR) Calculator

Sustainable Growth Rate (SGR) Calculator

The Sustainable Growth Rate (SGR) is a crucial financial metric that measures the maximum growth a company can achieve without raising new equity or significantly changing its financial leverage. It indicates how fast a business can grow its sales, earnings, and dividends using only internally generated funds, making it one of the most important indicators of long-term financial stability and growth potential.

Our Sustainable Growth Rate (SGR) Calculator helps businesses, analysts, and investors quickly determine this growth rate using Net Income, Dividends Paid, and Total Shareholder Equity. The calculator also derives Retention Ratio (b) and Return on Equity (ROE) to provide a complete picture of a company’s sustainable growth.

🔎 What is Sustainable Growth Rate (SGR)?

Where:
ROE (Return on Equity) = (Net Income ÷ Shareholder Equity) × 100
Retention Ratio (b) = (Net Income − Dividends Paid) ÷ Net Income

👉 Interpretation:
High SGR → Company can expand rapidly without relying on external funding.
Moderate SGR → Indicates balanced growth and stable reinvestment policies.
Low SGR → Suggests limited reinvestment capacity and potential dependency on debt or equity issuance.

📚 Examples of Sustainable Growth Rate

Example 1

Net Income: $180,000
Dividends Paid: $15,000
Shareholder Equity: $250,000

Step 1 – Calculate Retention Ratio (b):

Step 2 – Calculate ROE:

Step 3 – Calculate SGR:

✅ Retention Ratio = 91.67% , ROE = 72% , Sustainable Growth Rate = 66%
This company can grow its earnings and sales by 66% annually without external financing at an impressive growth rate.

Example 2

Net Income: $90,000
Dividends Paid: $25,000
Shareholder Equity: $400,000

Step 1 – Retention Ratio:

Step 2 – ROE:

Step 3 – SGR:

✅ Retention Ratio = 72.22% , ROE = 22.5% , Sustainable Growth Rate = 16.25%
This indicates that the company can grow at a healthy but manageable rate without external capital.

Example 3

Net Income: $70,000
Dividends Paid: $20,000
Shareholder Equity: $500,000

Step 1 – Retention Ratio:

Step 2 – ROE:

Step 3 – SGR:

✅ Retention Ratio = 71.43% , ROE = 14% , Sustainable Growth Rate = 10%
This suggests the company can only grow at 10% annually without borrowing or issuing new equity, which may limit its expansion opportunities.

✨ Key Features of the SGR Calculator

💡 Why Sustainable Growth Rate Matters

Investor Insight: Shows how much growth can be funded through retained earnings alone.
Dividend Policy Evaluation: Helps assess whether dividend payouts align with long-term growth goals.
Business Planning: Companies can plan expansions while maintaining financial stability.
Risk Management: Avoids over-reliance on debt or equity dilution.
Strategic Comparison: Investors can compare SGR across companies in the same industry.