The sustainable growth rate of a business is the growth rate that can be achieved by maintaining the existing mix of debt and equity. The formula to calculate sustainable growth rate is as follows:
Sustainable growth rate = Retention Rate * Return on Equity
where retention rate is the percentage of earnings that a company reinvests and return on equity (ROE) is a company’s net income divided by its average stockholder’s equity.
To find the sustainable growth rate for a given business, simply enter the retention rate and return on equity in the boxes below and then click the “Calculate” button.