Sustainable Growth Rate Formula and Definition

In this article, you will learn about the definition of Sustainable Growth Rate and other information, along with equation for retained earnings that are necessary to understand it. You will also be learning about the sustainable growth rate formula. Continue reading for more useful info provided by our managerial economics homework help services’ best writers.

sustainable growth rate formula

Sustainable Growth Rate Formula: Short History of the Definition

Sustainable Growth Rate (SGR) is a measure used by firms on their maximum rate of growth without borrowing finances outside their territory. This growth rate should neither increase in the debts of the firm nor cause issues in the new equity. Once a firm has passed the rate, the growth will go down for a long period. Hence, it must look for outside financing for its additional growth.

General Information about Sustainable Growth Rate

SGR is the maximum growth rate of a firm in sales from its internal financial resources. If a firm is able to plan and sustain its growth rate, unprofitable development will be avoided. Therefore, there is a need to know how to calculate sustainable growth rate with or without using the sustainable growth rate calculator.

sustainable growth rate formula and definition

Explanation and Formula

To be able to increase sales based on the integral financial resources of a firm, it has to improve its sales, so it is important to know how to calculate sustainable growth rate. This will need new assets, which can be done by the increase in the retained earnings. Therefore, there is also a need to know the equation for retained earnings to be able to realize its increase. But if the firm does not want to issue new equity or does not want to resort to borrowing money from outside sources, the profit margin should be increased. The assets should also be converted into equity ratio.

sustainable growth rate formula

To get the SGR, you need to know:

  • the return on equity (ROE), and
  • the percentage of the profits of the firm

It is calculated this way, ROE x (1 – dividend-payout ratio). This calculation assumes that firm aims for the maintenance of its target capital structure of both debt and equity. It also assumes the firm’s desire to keep a static dividend payout ratio. In addition, it aims to accelerate its sales in the allowable fastest way. If the growth is over the SGR, the remedy of the firm is a financial strategy to sell more equity. This strategy will also increase your financial control by debts. It decreases the dividend payouts but increases your profit margins or declines the assets to sales ratio. These things will increase your SGR.

How Our Online Service Can Help You with Your Homework and Our Benefits

There are many ways or examples on how to get your SGR or forward rate formula on the internet. But aside from these examples, you can also avail of our online service. Our online service will help you in the management of your SGR. It is well known that sustaining such rate is a bit difficult or critical. The specialists and experts in our company will give you a hand with your problems. We know how to make use of a sustainable growth rate calculator for easier determination of your status. In this way, the online service will be able to know the needs of your firm or answer your homework.

If you want to prevent scarcity in your financial resources and overextension of your financial advantage, you should learn more about the sustainable growth rate formula today!