1. What is Sustainable Growth Rate?

Sustainable Growth Rate represents the pace at which a company can expand its operations using internally generated funds, without relying on borrowing or issuing new equity.

2. How Does the Calculator Work?

The calculator uses the Sustainable Growth Rate formula:

Where:

• \( SGR \) — Sustainable Growth Rate (%)
• \( RR \) — Retention Ratio (0 to 1)
• \( ROE \) — Return on Equity (%)

Explanation: The formula calculates the maximum growth rate a company can achieve while maintaining its current financial structure and without issuing new equity.

3. Importance of SGR Calculation

Details: SGR helps companies determine their optimal growth rate without overextending financially. It's crucial for strategic planning and maintaining financial stability.

4. Using the Calculator

Tips: Enter retention ratio as a decimal between 0 and 1, and return on equity as a percentage. Both values must be valid numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Sustainable Growth Rate?
A: A good SGR varies by industry, but generally, a rate that matches or slightly exceeds industry average while maintaining financial stability is considered good.

Q2: How does SGR differ from actual growth rate?
A: SGR represents the maximum sustainable growth, while actual growth rate may be higher (if using external financing) or lower (if underperforming).

Q3: What factors affect Sustainable Growth Rate?
A: SGR is primarily affected by profit margins, asset turnover, financial leverage, and dividend policy through their impact on ROE and retention ratio.

Q4: Can SGR be negative?
A: Yes, if either ROE is negative (company is losing money) or retention ratio is negative (company is paying out more than it earns).

Q5: How can a company increase its Sustainable Growth Rate?
A: Companies can increase SGR by improving profitability (increasing ROE) or retaining more earnings (increasing retention ratio).