If a company tries to grow faster than its sustainable growth rate, it must borrow more, issue shares or improve profitability. Growing slower may leave capital idle.
How to use the Sustainable Growth Rate Calculator
- Net income
- Dividends paid
- Total shareholders’ equity
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter net income, dividends paid and total shareholders’ equity.
Tips
- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.
Common mistakes to avoid
- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.
Inputs explained
| Field | What to enter |
|---|---|
| Net income | Amount in your currency |
| Dividends paid | Amount in your currency |
| Total shareholders’ equity | Amount in your currency |
What each result means
- Retention ratio = ([Net income] – [Dividends paid])÷[Net income]×100
- Return on equity (ROE) = [Net income]÷[Total shareholders’ equity]×100
- Sustainable growth rate (SGR) = [Return on equity (ROE)]×[Retention ratio]÷100
- SGR using beginning-of-year equity = [Return on equity (ROE)]×[Retention ratio]÷100÷(1 – [Return on equity (ROE)]×[Retention ratio]÷10000)
Example values
How the main result changes when Net income changes and everything else stays at the example values above:
| Net income | Sustainable growth rate (SGR) (%) |
|---|---|
| 7,500,000 | 2.5 |
| 11,250,000 | 6.25 |
| 15,000,000 | 10 |
| 18,750,000 | 13.75 |
| 22,500,000 | 17.5 |
| 30,000,000 | 25 |
Formula
Retention ratio b = (net income − dividends) ÷ net incomeROE = net income ÷ equitySGR = ROE × b (or ROE × b ÷ (1 − ROE × b) using beginning equity)Worked example
Inputs — Net income: $15,000,000; Dividends paid: $5,000,000; Total shareholders' equity: $100,000,000.
Results — Retention ratio = 66.67 %; Return on equity (ROE) = 15 %; Sustainable growth rate (SGR) = 10 %; SGR using beginning-of-year equity = 11.11 %.
Frequently asked questions
What is the sustainable growth rate?
The fastest a company can grow without outside equity or more leverage.
How do I raise the SGR?
Increase ROE or retain more earnings.
What if actual growth exceeds SGR?
The company will need more debt or new equity.
What formula does the Sustainable Growth Rate Calculator use?
Retention ratio b = (net income − dividends) ÷ net income.