Sustainable Growth Rate Calculator
The sustainable growth rate (SGR) is the fastest pace a company can grow using only internal funds, without issuing new equity and while holding its leverage steady. It equals return on equity times the earnings retention ratio. This calculator computes the SGR from ROE and the retention ratio, and also shows the implied payout ratio. If a company wants to grow faster than its SGR, it must raise external capital or lift its profitability or retention. Enter return on equity and the retention ratio as percentages.
Sustainable growth rate formula
Sustainable growth rate = return on equity * retention ratio
Retention ratio = 1 - payout ratio
Implied payout ratio = 1 - retention ratio
Return on equity can itself be decomposed via the DuPont identity into profit margin, asset turnover, and financial leverage, which shows the levers behind the growth rate.
Sustainable growth context
- SGR is the internally funded growth ceiling at constant leverage.
- Higher ROE or higher retention raises the sustainable growth rate.
- Growing faster than SGR requires external financing or higher profitability.
- Growing slower than SGR builds up internal funds.
- The model assumes stable margins, turnover, leverage, and retention.
Sustainable growth rate: frequently asked questions
What is the sustainable growth rate?
The sustainable growth rate (SGR) is the fastest a company can grow sales and assets using only internally generated funds, without raising new equity and while keeping its debt-to-equity ratio constant. It equals return on equity multiplied by the earnings retention ratio.
How is the sustainable growth rate calculated?
Multiply return on equity (ROE) by the retention ratio (the share of earnings kept rather than paid as dividends). For example, a 15 percent ROE and a 60 percent retention ratio give a sustainable growth rate of 0.15 times 0.60, which is 9 percent.
What is the retention ratio here?
The retention ratio, also called the plowback ratio, is one minus the dividend payout ratio. It is the fraction of net income reinvested rather than distributed. A company that pays out 40 percent of earnings has a 60 percent retention ratio.
Why does the sustainable growth rate matter?
If a company grows faster than its SGR, it must raise external capital (debt or equity) or improve profitability or retention. Growing slower than the SGR means it is generating more internal funds than it is using. The SGR is a benchmark for financing strategy.
What are the model's assumptions?
The SGR assumes a constant profit margin, asset turnover, financial leverage, and retention ratio, and no new equity issuance. Real companies vary these over time, so treat the SGR as a planning benchmark rather than a precise forecast.
Official sources
- U.S. Securities and Exchange Commission: Investor.gov.
- U.S. Securities and Exchange Commission: SEC.gov.
Reviewed by the CalculatorHub team, edited by James Graham, 17 June 2026. See our methodology.