Sustainable Growth Rate Calculator

What the sustainable growth rate measures

SGR answers a practical question: how fast can a company grow without changing its capital structure? It depends on two factors — how profitably the company uses shareholder equity (ROE) and how much of those profits it retains rather than paying out as dividends.

Companies growing faster than their SGR must either issue new shares (diluting existing owners) or take on more debt (increasing leverage and risk). Companies growing below their SGR are accumulating excess capital.

SGR formula

The calculation multiplies two percentages: return on equity and the retention rate (also called the ploughback ratio).

Worked example

A company has ROE of 15% and retains 60% of earnings (paying 40% as dividends). SGR = 15% × 60% = 9%. The company can grow at 9% per year sustainably.

Limitations

Assumes constant ROE and payout policy. Does not account for changes in operating efficiency, competitive dynamics, or capital expenditure needs. Not applicable to loss-making companies.