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FINANCE / RETAINED GROWTH

Sustainable Growth Rate Calculator

Estimate growth supportable by retained earnings under stable return on equity and financing assumptions.

  • 01 Calculated in this tab
  • 02 Values stay in this browser tab
  • 03 Use boundary

Conversion input

Known value

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Inputs

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METHOD / WORKED EXAMPLE

Connect retained earnings to growth capacity

The model estimates a growth rate consistent with retaining part of earnings while keeping key financial relationships stable.

WORKED DEFAULT

Check the calculation with the default inputs

At 15% ROE and a 40% payout ratio, retention is 60%, ROE times retention is 9%, and sustainable growth is 9.8901%.

  1. One minus 40% payout60% retention
  2. 15% ROE times 60% retention9% retained return
  3. 9% divided by 91%9.8901% sustainable growth

READ THE RESULT

Interpret the output in context

The estimate is a steady-state financing relationship. It is most useful for scenario comparison, not as a revenue forecast.

ASSUMPTIONS AND LIMITS

Know where the model stops

  • ROE, payout, leverage, and asset efficiency remain stable.
  • No new common equity is issued.
  • The payout rate is measured against the same earnings basis as ROE.

This is an accounting-growth model. It does not show whether market demand, cash flow, or financing capacity can support the result.

Thompson Rivers University: sustainable growth

COMMON QUESTIONS

Sustainable Growth Rate Calculator FAQs

Why is the result higher than ROE times retention?

This calculator uses the sustainable-growth form bROE divided by one minus bROE, which accounts for growth in the financing base during the period. The simpler bROE product is also shown for comparison.

Does sustainable growth predict sales growth?

No. It describes a financing relationship under stable assumptions. Actual sales growth also depends on demand, pricing, capacity, competition, working capital, and management decisions that this compact model does not forecast.

What happens if the payout ratio rises?

A higher payout leaves a smaller share of earnings retained, so the modeled sustainable growth rate normally falls when ROE and the other assumptions stay unchanged.

Use boundary

Calculation path

The calculator converts payout to retention, multiplies retention by ROE, and applies the stable-financing sustainable-growth form.

Calculation path

Sustainable growth = (ROE x retention ratio) / (1 - ROE x retention ratio).