Sustainable Growth Rate Calculator

The sustainable growth rate (SGR) estimates how quickly a company can grow sales, assets, and operations by reinvesting its own profits while keeping its capital structure and operating relationships unchanged. It is especially useful for an owner, analyst, or lender who wants to ask whether an ambitious growth plan can be financed internally or whether it will require more borrowing, new equity, lower dividends, better margins, or more efficient asset use. SGR is not a prediction of next year's revenue. It is a disciplined consistency check between profitability, dividend policy, and financing capacity. The calculation begins with return on equity (ROE): net income divided by shareholders' equity. ROE measures profit generated for each unit of book equity. Next, the retention ratio measures the share of earnings left in the company after dividends: 1 minus dividends divided by net income. Multiplying ROE by the retention ratio produces the sustainable growth rate. A business earning 16.67% on equity and paying out 20% of income retains 80%, so its estimated SGR is 13.33%. If dividends are blank, the calculator treats them as zero and models full earnings retention. This simple model relies on important assumptions. It assumes ROE stays stable, the company maintains the same debt-to-equity relationship, all retained earnings can support growth, and working-capital and fixed-asset needs scale consistently. Those assumptions are often too smooth for an early-stage company, a cyclical business, a bank, or a business undergoing a major acquisition. Net income should be measured consistently with the equity figure, preferably using the same accounting period and average equity when appropriate. One-off gains, losses, or unusually large dividends can make a single-period result misleading. Use the estimate to frame questions rather than set a target blindly. If planned growth is above SGR, identify the intended source of extra financing and its cost. If it is below SGR, excess cash might support debt reduction, dividends, buybacks, or new investments. Compare multiple years and peers before reaching a conclusion. The calculator excludes valuation, cash-flow timing, taxes, share issuance, debt covenants, and management strategy, so it is a planning tool rather than investment advice or a complete forecast.