Sustainable Growth Rate Calculator (ROE, Retention and Internal Growth)
The fastest a company can grow sales without issuing shares or changing its leverage, from its return on equity and the share of profit it keeps, plus the internal growth rate.
Results
What this tool does
If a firm keeps a fraction b of its profit and earns a return on equity ROE, its equity can grow by about ROE × b a year; holding the debt-to-equity ratio steady, assets and sales can grow at that rate and no faster. When ROE is measured on year-end equity, the formula is ROE × b ÷ (1 − ROE × b); on opening equity it is simply ROE × b. The internal growth rate uses return on assets instead and assumes no new borrowing at all. Growing faster than these rates needs more debt, new shares or better margins — which is why a fast-growing company can run out of cash even when it is profitable.
Formula
SGR = ROE × b ÷ (1 − ROE × b) · b = 1 − payout · internal = ROA × b ÷ (1 − ROA × b)
Variables
| Symbol | Meaning | Unit |
|---|---|---|
roe | Return on equity (ROE) | % |
po | Dividend payout ratio | % |
roa | Return on assets (ROA) | % |
SG | Sustainable growth rate | % |
SB | Growth rate if ROE is measured on opening equity | % |
RR | Retention ratio (share of profit kept) | % |
IG | Internal growth rate (no new borrowing or shares) | % |
Worked example
- Return on equity (ROE)15 %
- Dividend payout ratio40 %
- Return on assets (ROA)8 %
- Sustainable growth rate9.89 %
- Growth rate if ROE is measured on opening equity9.00 %
- Retention ratio (share of profit kept)60.0 %
- Internal growth rate (no new borrowing or shares)5.04 %
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The result is an estimate based only on the values you type. Real situations often include factors this calculator does not know about.