Sustainable Growth Rate Calculator
The Sustainable Growth Rate (SGR) Calculator helps businesses estimate the maximum growth rate they can achieve without needing external financing. The formula is based on the Retention Ratio and Return on Equity (ROE). This tool is invaluable for financial analysts and business owners to maintain stability while growing effectively.
Formula
The formula for Sustainable Growth Rate (SGR) is:
SGR = Retention Ratio × Return on Equity (ROE)
How to Use
To use the Sustainable Growth Rate Calculator, enter your Retention Ratio (percentage of profits retained) and Return on Equity (ROE) values. Click "Calculate" to view your SGR. Use the "Clear" button to reset the fields. The calculator will display results in a table along with a detailed explanation.
Calculator
Result
FAQs
1. What is a Sustainable Growth Rate Calculator?
A Sustainable Growth Rate Calculator is a tool that helps businesses calculate the growth rate they can sustain without needing external funding, based on their Retention Ratio and ROE.
2. Why is SGR important?
SGR is crucial for businesses to ensure they grow at a pace supported by their internal resources, avoiding financial distress.
3. How is Retention Ratio calculated?
Retention Ratio is calculated as 1 minus the dividend payout ratio. It represents the percentage of profits retained for reinvestment.
4. How is ROE calculated?
ROE (Return on Equity) is calculated as Net Income divided by Shareholder's Equity.
5. Can SGR be negative?
Yes, SGR can be negative if either the Retention Ratio or ROE is negative, indicating financial issues or declining performance.
6. Who can use this calculator?
This calculator is useful for financial analysts, investors, business owners, and students studying finance or accounting.
7. Is SGR applicable to all industries?
While SGR is widely applicable, its relevance varies across industries with different growth patterns and financial dynamics.
8. How often should SGR be calculated?
SGR should be calculated periodically to assess growth potential and adjust financial strategies accordingly.
9. What factors affect SGR?
SGR is influenced by changes in the Retention Ratio, ROE, business profitability, and market conditions.
10. Can SGR predict future growth?
SGR provides an estimate of sustainable growth but should be used alongside other financial metrics for comprehensive forecasting.