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Finance Calc Kit
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Sustainable Growth Rate Calculator

Calculate the Sustainable Growth Rate (SGR) of a company using ROE, retention ratio, profit margin, and asset turnover without issuing new equity.

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Sustainable growth rate (SGR)

10.50%

Maximum growth without issuing new equity

Retention ratio (b)

70.00%

Payout ratio 30.00%

Return on equity (ROE)

15.00%

Exact SGR (ending equity basis)

11.73%

PRAT formula with intra-year retention

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What is the sustainable growth rate (SGR)?

The sustainable growth rate is the maximum pace at which a company can expand sales, earnings, and assets without issuing new equity or changing its target debt-to-equity mix. CFOs and equity analysts use SGR as a planning benchmark: growth above SGR usually requires more external capital, while growth far below SGR may signal idle cash or weak reinvestment opportunities.

Start from profitability with the return on equity calculator, then estimate how much earnings stay in the business using the retention ratio calculator. For a full driver breakdown, use the DuPont analysis calculator.

Sustainable growth rate formula

SGR=ROE×b\text{SGR} = \text{ROE} \times b

ROE is return on equity and b is the retention ratio (plowback ratio). The retention ratio equals one minus the dividend payout ratio:

b=1−Dividend Payout Ratiob = 1 - \text{Dividend Payout Ratio}

DuPont and PRAT models

When ROE is not given directly, derive it from DuPont components:

ROE=Net Profit Margin×Asset Turnover×Equity Multiplier\text{ROE} = \text{Net Profit Margin} \times \text{Asset Turnover} \times \text{Equity Multiplier}

Multiplying margin, retention, asset turnover, and leverage gives the PRAT form of sustainable growth:

SGR=P×R×A×T\text{SGR} = P \times R \times A \times T

When SGR is measured on an ending-equity basis rather than beginning equity, the exact formula accounts for earnings retained during the year:

SGRexact=ROE×b1−(ROE×b)\text{SGR}_{\text{exact}} = \frac{\text{ROE} \times b}{1 - (\text{ROE} \times b)}

Worked example

With ROE of 15% and a dividend payout ratio of 30%, the retention ratio is 70%. Standard SGR equals 0.15 × 0.70 = 10.5%. The exact ending-equity SGR equals 0.105 ÷ (1 − 0.105) = 11.73%. In DuPont mode, a 10% net margin, 1.20x asset turnover, and 1.25x equity multiplier also produce 15% ROE, so SGR stays 10.5% at the same payout policy.

Why SGR matters for capital planning

Growing faster than SGR forces a firm to raise debt, cut dividends, improve margins, or sell new shares. Growing slower than SGR can leave excess cash on the balance sheet. SGR assumes stable ROE, a constant payout policy, and no new equity issuance, so treat it as a directional guide rather than a forecast.

Frequently asked questions

What happens if actual growth exceeds the sustainable growth rate?
The company must fund the gap with higher leverage, lower dividends, better margins, or new equity. Sustained over-investment above SGR often increases financial risk.
How does dividend policy affect SGR?
Higher dividend payouts reduce the retention ratio, which lowers SGR because less net income is reinvested in the business.
What is the difference between SGR and internal growth rate (IGR)?
Internal growth rate assumes no new debt or equity. Sustainable growth rate allows debt financing as long as the debt-to-equity ratio stays constant.
When should I use the exact PRAT SGR formula?
Use the exact formula when you model growth on ending equity or need precision for intra-year retention. The standard SGR = ROE × b is the common beginning-equity approximation.
Can I share my scenario?
Yes. Input changes update the page URL so you can copy and share the exact SGR calculation.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.