FINANCE / RETAINED GROWTH
Estimate growth supportable by retained earnings under stable return on equity and financing assumptions.
METHOD / WORKED EXAMPLE
The model estimates a growth rate consistent with retaining part of earnings while keeping key financial relationships stable.
WORKED DEFAULT
At 15% ROE and a 40% payout ratio, retention is 60%, ROE times retention is 9%, and sustainable growth is 9.8901%.
READ THE RESULT
The estimate is a steady-state financing relationship. It is most useful for scenario comparison, not as a revenue forecast.
ASSUMPTIONS AND LIMITS
This is an accounting-growth model. It does not show whether market demand, cash flow, or financing capacity can support the result.
COMMON QUESTIONS
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.
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.
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.
RELATED TOOLS
Use boundary
The calculator converts payout to retention, multiplies retention by ROE, and applies the stable-financing sustainable-growth form.
Sustainable growth = (ROE x retention ratio) / (1 - ROE x retention ratio).