1. What is Sustainable Growth Rate?

The Sustainable Growth Rate (SGR) is the maximum growth rate a company can achieve without having to increase financial leverage or equity financing. It's based on the company's return on equity (ROE) and dividend payout ratio.

2. How Does the Calculator Work?

The calculator uses the SGR formula:

Where:

• \( ROE \) — Return on Equity (decimal)
• \( Dividend\ Payout \) — Dividend Payout Ratio (decimal)

Explanation: The formula shows how much a company can grow using its retained earnings while maintaining the same capital structure.

3. Importance of SGR Calculation

Details: SGR helps companies plan their growth strategies without overextending financially. It's crucial for financial planning and assessing whether growth targets are realistic.

4. Using the Calculator

Tips: Enter ROE and Dividend Payout Ratio as decimals (e.g., 0.15 for 15%). Both values must be between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What's a good SGR?
A: There's no universal "good" SGR. It depends on industry standards and company strategy. Compare with industry peers for context.

Q2: How can a company increase its SGR?
A: By either increasing ROE (through higher profits or more efficient asset use) or reducing dividend payout (retaining more earnings).

Q3: What if actual growth exceeds SGR?
A: The company will need additional financing (debt or equity) to sustain growth beyond its SGR.

Q4: Does SGR account for inflation?
A: No, SGR is a real growth rate. For nominal growth, you'd need to adjust for inflation.

Q5: What are limitations of SGR?
A: Assumes constant capital structure, doesn't account for external factors, and assumes all growth comes from retained earnings.