Sustainable Growth Rate (SGR) Calculator







Formulas

The formula to calculate the Retention Ratio is:

\[ \text{Retention Ratio} = 1 - \frac{\text{Dividends Paid}}{\text{Net Income}} \]

The formula to calculate the Return on Equity (ROE) is:

\[ \text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} \]

The formula to calculate the Sustainable Growth Rate (SGR) is:

\[ \text{SGR} = \text{Retention Ratio} \times \text{ROE} \times 100\% \]

Description

The Sustainable Growth Rate (SGR) measures the rate at which a company can grow its sales, earnings, and dividends at a consistent rate without having to increase debt or equity. It indicates how much of the company's profit is retained and reinvested in the business.

Example Calculation

Let's assume the following:

To calculate the Retention Ratio:

\[ \text{Retention Ratio} = 1 - \frac{1,000,000}{2,000,000} = 0.50 \]

To calculate the ROE:

\[ \text{ROE} = \frac{2,000,000}{10,000,000} = 0.20 \]

To calculate the SGR:

\[ \text{SGR} = 0.50 \times 0.20 \times 100\% = 10\% \]

Therefore, the Sustainable Growth Rate (SGR) is 10%.