Sustainable Growth Rate Calculator

SGR Range	Band	General read
Below 0%	Negative	ROE or retention is negative — no internally-funded growth is possible.
0% – 5%	Low	Modest internally-funded growth — typical of mature, dividend-heavy companies.
5% – 10%	Moderate	A reasonable, middle-of-the-road result for an established, moderately profitable company.
10% – 20%	Strong	Strong internal funding capacity from high profitability, high reinvestment, or both.
Above 20%	Very high	Common in early-stage or high-growth companies — sanity-check the underlying ROE for leverage.

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Walk-through

How to Use This Calculator

4 steps

1

Enter ROE

On the SGR tab, enter the company's return on equity (ROE) as a percentage. If you only have net income and shareholders' equity, use the ROE Calculator first, then bring the result back here.

2

Enter the retention ratio (or payout ratio)

Choose whether you have the retention ratio or the payout ratio using the "I have" dropdown, then enter the percentage. If you only know net income and dividends paid, switch to the Retention Ratio tab to derive it, then click "Use this value on the SGR tab."

3

Read the sustainable growth rate

The result card shows the SGR — the maximum growth rate the company can sustain using only internally generated funds, with no new debt or equity. The interpretation line and band explain what that number generally implies.

4

Check against an actual or target growth rate

Switch to the Implications tab and enter the company's actual or targeted growth rate. The calculator tells you whether that growth fits within the SGR or whether it will require external financing, and by how much.

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Reference

Formula & Methodology

3 formulas

Sustainable growth rate

SGR = ROE x Retention Ratio

ROE (return on equity) is net income divided by shareholders' equity, expressed as a percentage. The retention ratio is the share of net income the company reinvests rather than pays out as dividends, also expressed as a percentage. Multiplying the two gives the growth rate a company can sustain purely from retained earnings, without issuing new debt or equity.

Retention ratio from payout ratio

Retention Ratio = 1 - Payout Ratio

If you know the payout ratio (the share of net income paid out as dividends) instead of the retention ratio directly, subtract it from 100% (or 1, if working in decimals) to get the retention ratio.

Retention ratio from financials

Retention Ratio = 1 - (Dividends Paid / Net Income)

When you have raw financials instead of a stated payout or retention ratio, divide dividends paid by net income to get the payout ratio, then subtract from 1 to get the retention ratio. The Retention Ratio tab does this calculation for you.

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Glossary

Key Terms Explained

7 terms

Sustainable growth rate (SGR) The maximum rate at which a company can grow its revenue and earnings using only internally generated funds — retained earnings — without taking on new debt or issuing new equity.

Return on equity (ROE) Net income divided by shareholders' equity, expressed as a percentage. Measures how efficiently a company turns shareholders' capital into profit, and is one of the two inputs to SGR.

Retention ratio The share of net income a company reinvests in the business rather than distributing to shareholders as dividends. Also called the plowback ratio. Equal to 1 minus the payout ratio.

Payout ratio The share of net income a company distributes to shareholders as dividends. Equal to 1 minus the retention ratio — the two always sum to 100% of net income.

Internal growth rate A related, more conservative measure of self-funded growth that uses return on assets (ROA) instead of ROE, and does not assume the company maintains its current capital structure. SGR is generally the more commonly cited figure.

Dividend policy A company's stated or observed approach to paying dividends versus reinvesting earnings. A higher-payout dividend policy lowers the retention ratio and, all else equal, lowers the SGR.

External financing New debt or equity a company raises to fund growth beyond what its retained earnings can support. Growing faster than the SGR isn't inherently a problem, but it does mean the company needs external financing (or a change in ROE or dividend policy) to fund it.

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Scenarios

Real-World Examples

3 worked examples

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High-growth tech company

High ROE, high retention

ROE 25% Retention Ratio 90%

SGR = 25% x 90% = 22.5%. This company retains nearly all its earnings to fund expansion, and its high profitability means it can sustain very fast growth — over 20% a year — without raising outside capital. If it targets growth faster than 22.5%, it will still need external financing.

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Mature dividend-paying company

Moderate ROE, low retention

ROE 12% Retention Ratio 20%

SGR = 12% x 20% = 2.4%. This company pays out most of its earnings as dividends (an 80% payout ratio), leaving little for reinvestment. It can only sustain very slow, internally-funded growth — typical of a mature, income-focused business.

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Company targeting growth beyond its SGR

Actual growth exceeds SGR

ROE 15% Retention Ratio 60%

SGR = 15% x 60% = 9%. If this company is actually growing revenue at 14% a year (check the Implications tab), it's outpacing what retained earnings can fund by 5 points — meaning it must be raising debt or equity, drawing down cash reserves, or the growth is not sustainable at the current ROE and dividend policy.

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Deep Dive

Understanding the Sustainable Growth Rate

3 chapters · 4 min read

The sustainable growth rate (SGR) answers a simple but important question: how fast can a company grow using only the cash it generates itself, with no new borrowing and no new share issuance? It's a quick health check on whether a company's growth ambitions match its actual internal funding capacity.

How the Sustainable Growth Rate Calculator works

SGR = ROE x retention ratio. Return on equity (ROE) measures how much profit a company generates per dollar of shareholders' equity. The retention ratio measures what fraction of that profit is kept in the business rather than paid out as dividends. Multiply the two together and you get the rate at which equity — and, assuming a stable capital structure, revenue and earnings — can grow using only retained profit.

This calculator lets you enter ROE and retention ratio directly, or derive the retention ratio from net income and dividends paid on the Retention Ratio tab if you don't have it as a stated percentage.

Inputs and what they mean

ROE is net income divided by shareholders' equity, as a percentage. A higher ROE means the company converts equity into profit more efficiently — but very high ROE can also come from heavy debt leverage rather than pure operating strength, so it's worth running a DuPont breakdown alongside SGR.

Retention ratio is the percentage of net income kept in the business (1 minus the payout ratio). Growth-focused companies with reinvestment opportunities tend to retain most or all of their earnings; mature, income-oriented companies tend to pay most of it out as dividends. If you only have the payout ratio, switch the "I have" dropdown — the calculator converts it for you.

Limits and edge cases

SGR assumes the company holds its capital structure, dividend policy, and ROE roughly constant going forward — real companies frequently change all three, so treat SGR as a snapshot, not a multi-year forecast. A negative ROE (the company is losing money) or a negative retention ratio (paying out more than it earns) both produce a negative or economically meaningless SGR — in either case, any growth at all requires outside financing or a change in the underlying fundamentals. Growing faster than the calculated SGR is common and not automatically a red flag; it simply means the company is (or should be) raising debt or equity, or drawing down cash reserves, to fund the gap. This calculator is a planning heuristic, not investment or credit advice — verify inputs against the company's actual financial statements before relying on the result.

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Questions

Frequently Asked Questions

6 questions

What is the sustainable growth rate formula?+

SGR = ROE x Retention Ratio. ROE is net income divided by shareholders' equity; the retention ratio is the share of net income reinvested rather than paid out as dividends (1 minus the payout ratio).

What does the sustainable growth rate actually mean?+

It's the maximum growth rate a company can fund using only its own retained earnings — with no new debt and no new equity issuance. It's a ceiling on self-funded growth, not a prediction of actual future growth.

What happens if a company grows faster than its SGR?+

It needs external financing to fund the gap — new debt, new equity, or drawing down cash reserves — or it needs to raise ROE, cut its dividend (raising the retention ratio), or accept slower growth. Exceeding SGR isn't automatically bad; it's common for fast-growing companies, but it does mean outside capital is involved.

How is the retention ratio calculated?+

Retention ratio = 1 - Payout Ratio, or equivalently, 1 - (Dividends Paid / Net Income). If you don't have a stated retention or payout ratio, use the Retention Ratio tab to derive it from net income and dividends paid.

How does the DuPont identity relate to SGR?+

ROE — one of the two SGR inputs — can itself be decomposed via the DuPont identity into net margin x asset turnover x equity multiplier. A high SGR driven mainly by leverage (a high equity multiplier) is riskier than one driven by genuine profitability or efficiency, so it's worth running a DuPont Analysis alongside SGR for a fuller picture.

What is the sustainable growth rate used for?+

Growth planning and financing forecasts — investors and analysts use it to sanity-check whether a company's growth targets are achievable with internal funds alone, and management teams use it to estimate how much external financing a growth plan will require.

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