1. What is Sustainable Growth Rate (SGR)?

The Sustainable Growth Rate (SGR) is the maximum growth rate that a company can sustain without having to increase financial leverage or equity financing. It's based on the company's return on equity (ROE) and dividend payout ratio.

2. How Does the Calculator Work?

The calculator uses the SGR formula:

Where:

• \( ROE \) — Return on Equity (as decimal, e.g., 0.15 for 15%)
• \( \text{dividend\_payout\_ratio} \) — Dividend payout ratio (as decimal, e.g., 0.30 for 30%)

Explanation: The formula shows how much a company can grow using only its retained earnings without needing additional financing.

3. Importance of SGR Calculation

Details: SGR helps companies plan their growth strategies, determine if they're growing too fast (which might require external financing), or too slow (which might indicate inefficient use of retained earnings).

4. Using the Calculator

Tips: Enter ROE and dividend payout ratio as decimals (e.g., 0.15 for 15%). Both values must be between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What is a good SGR value?
A: There's no universal "good" value, but generally higher is better. Compare with industry averages for context.

Q2: Can SGR be negative?
A: No, since ROE is positive and dividend payout ratio is between 0-1, SGR will always be 0 or positive.

Q3: What if a company grows faster than its SGR?
A: The company will need to seek external financing (debt or equity) to support the additional growth.

Q4: How does SGR relate to dividend policy?
A: Higher dividend payout ratios result in lower SGR, as less earnings are retained for growth.

Q5: What are limitations of SGR?
A: Assumes constant capital structure and dividend policy, and doesn't account for external market conditions.