Estimate the growth rate a business may support from retained earnings without issuing new equity.
Enter positive net income and equity, plus dividends no greater than net income.
This simplified measure assumes profitability, leverage, payout policy, and operating efficiency remain stable. It is not a forecast or a financing recommendation.
The sustainable growth rate calculator estimates how quickly a company could grow under a compact accounting model: it earns a return on shareholder equity and reinvests the portion of net income not paid as dividends. The output is a percentage for the same reporting period as the inputs.
This is a planning ratio, not a sales forecast or valuation. It assumes profitability, payout policy, asset use, and financing relationships remain broadly stable.
The currency menu labels the figures but does not perform foreign-exchange conversion. All three amounts should use one currency and one scale, such as thousands of dollars.
Retention ratio b = 1 − dividends ÷ net income
Return on equity ROE = net income ÷ shareholder equity
Sustainable growth rate g = b × ROE
The page restricts dividends to the range from zero through net income, producing a retention ratio from zero to one.
| Entry or ratio | Meaning |
|---|---|
| Net income | Earnings after expenses for the selected period. |
| Dividends | Distributions associated with that period. |
| Equity | Shareholders’ book equity used as the ROE denominator. |
| b | Share of earnings retained. |
| g | Modeled sustainable growth percentage. |
Suppose net income is 120, dividends are 30, and shareholder equity is 800, all in the same currency scale. Retention is 1 − 30/120 = 0.75, or 75%. ROE is 120/800 = 0.15, or 15%.
The sustainable growth rate is 0.75 × 0.15 = 0.1125, so the page returns 11.25%. The currency scale cancels from each ratio.
The result says what growth is consistent with the entered profitability and retained share under the model. It does not say that demand, revenue, assets, or earnings will actually grow at that rate.
Use figures drawn from the same financial statements and reporting period. Mixing quarterly income with year-end equity or annual dividends can distort the ratio. Analysts often use average beginning-and-ending equity for ROE; this page uses the single equity value entered.
A high result may reflect strong profitability, high retention, unusually low equity, or one-time earnings. Review the financial statements before treating it as repeatable. Negative earnings, share buybacks, special dividends, and accounting adjustments need analysis beyond this form.
If dividends equal net income, retention is zero and the modeled growth rate is zero even though the company might obtain external financing. If dividends are zero, sustainable growth equals the entered-period ROE under the simplified relationship.
Actual growth above this result may require new debt or equity, improved margins, faster asset turnover, or a different payout. Growth below it may reflect weak demand, deliberate cash accumulation, acquisition timing, or conservative forecasts.
Compare several normal periods rather than relying on one exceptional year. Recalculate with normalized earnings when a documented one-time item would otherwise dominate. Also compare the result with management guidance, cash flow, debt covenants, and capital needs.
This ratio is one input to analysis. It is not personalized investment advice and does not measure market value, liquidity, solvency, or the risk of owning a security.
No. It is a financing and profitability relationship based on retained earnings and equity returns. Demand and operating plans may produce a different sales outcome.
Use a clearly defined book-equity figure consistent with your analysis. Many analysts prefer average equity for a period, while this page uses the single amount entered.
The simplified model assumes retention between zero and one. A payout above earnings can occur in practice but needs a broader analysis of reserves, financing, and special distributions.
No. They label the entries. Put net income, dividends, and equity in the same currency and scale so the ratios are meaningful.
It may mean all earnings were distributed or ROE was zero. The page requires positive income and equity, so equal dividends and income create zero retention.
Yes if all inputs cover a consistent quarter and you interpret the percentage for that period. Do not label it annual without an appropriate annualization method.
No. A high number can accompany high risk, weak cash conversion, or unusually low equity. Read it with the statements, business conditions, and capital requirements.