1. What is Sustainable Earnings?

Sustainable earnings represent the portion of a company's income that is expected to continue in the future, excluding one-time gains or unusual items. It's a key metric for evaluating a company's long-term profitability.

2. How Does the Calculator Work?

The calculator uses the Sustainable Earnings formula:

Where:

• \( \text{Current Earnings} \) — The company's current earnings in USD
• \( \text{SGR} \) — Sustainable Growth Rate (expressed as a decimal)

Explanation: The formula projects future earnings by applying the sustainable growth rate to current earnings.

3. Importance of Sustainable Earnings Calculation

Details: Calculating sustainable earnings helps investors and analysts determine a company's true earning power by removing temporary fluctuations and one-time items.

4. Using the Calculator

Tips: Enter current earnings in USD and sustainable growth rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between reported earnings and sustainable earnings?
A: Reported earnings include all income and expenses, while sustainable earnings exclude one-time items to show ongoing profitability.

Q2: How is SGR (Sustainable Growth Rate) determined?
A: SGR is typically calculated as ROE × (1 - dividend payout ratio), representing how fast a company can grow without additional financing.

Q3: Why is sustainable earnings important for valuation?
A: It provides a more reliable basis for valuation multiples and discounted cash flow analyses than volatile reported earnings.

Q4: Can sustainable earnings be higher than reported earnings?
A: Yes, if a company had significant one-time expenses that depressed reported earnings below its sustainable level.

Q5: How often should sustainable earnings be recalculated?
A: Typically each quarter with new financial statements, adjusting for any changes in the company's fundamental earning power.