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Sustainable Growth Rate Calculator

Calculate the maximum growth rate a company can achieve without raising external funding.

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Calculation Parameters

Specify your inputs below.

Calculated Result

Retention Rate (Plowback) 60.00%
Sustainable Growth Rate (SGR) 9.00%
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Expert Tip

SGR indicates the maximum growth rate a company can achieve without taking on additional debt or issuing equity.

How this Calculator Works

This calculator computes the Sustainable Growth Rate (SGR), which represents the maximum annual growth rate a business can sustain without issuing new equity or taking on additional debt. It helps planners identify growth limits.

Formula & Methodology

SGR = ROE * (1 - Dividend Payout Ratio) - ROE is the Return on Equity (as a decimal). - Dividend Payout Ratio is the percentage of earnings paid as dividends (as a decimal).

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

A company reports a Return on Equity (ROE) of 15% and has a dividend payout ratio of 40%. 1. Calculate retention ratio: 1 - 0.40 = 0.60. 2. Multiply ROE by retention ratio: 0.15 * 0.60 = 0.09 (9%). Result: The Sustainable Growth Rate (SGR) of the company is 9.0%.

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Compute WACC (Weighted Average Cost of Capital) to evaluate corporate hurdle rates for investments.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This equity research and valuation calculator evaluates corporate fundamentals, stock price multiples, cost of capital, dividend discount models, and shareholder return metrics based on SEC financial reporting and Wall Street equity analysis standards.

Variable Glossary

Input

Equity Inputs

Share price, earnings per share (EPS), dividend amount, book value, debt/equity ratio, or systematic beta coefficient.

Parameter

Valuation Output

Price-to-Earnings (P/E), EV/EBITDA multiple, Intrinsic Value ($), WACC %, or Return on Equity (ROE %).

How to Calculate Step-by-Step

1

Step 1

Input current stock price, shares outstanding, or balance sheet / income statement numbers.

2

Step 2

Enter expected growth rate, cost of equity, or market risk premium assumptions.

3

Step 3

Review calculated valuation multiples, margin of safety comparison, or required rate of return.

FAQ

What is WACC and why is it crucial for equity valuation?
Weighted Average Cost of Capital (WACC) represents a company's required average return on debt and equity capital. It is used as the hurdle rate to discount future cash flows in DCF valuation models.
How does stock Beta measure systematic risk?
A stock beta of 1.0 means price volatility matches the broader market index. Beta > 1.0 indicates higher volatility, while Beta < 1.0 reflects lower systematic volatility.
Should valuation multiples be evaluated in isolation?
No. Valuation ratios (P/E, EV/EBITDA, P/B) should always be benchmarked against industry peer groups, historical trading averages, and expected earnings growth (PEG ratio).