Skip to main content

Sustainable growth rate

The sustainable growth rate is the fastest a company can grow using only internally generated funds: return on equity multiplied by the retention ratio, with no new equity issued and leverage unchanged.

ByHoang TruongUpdated

See it move

Loading infographic...

A company has a return on equity of 15% and retains 60% of its earnings, paying out the rest as dividends. Its sustainable growth rate is 0.15 × 0.60 = 0.09, or 9% — the fastest it can grow using only retained profit and proportionate new debt, without issuing new equity.

Where it fits
SubjectCorporate FinanceAdvancedTopicBusiness Valuation & DCFAdvancedTopicDividend Policy & PayoutAdvanced

The formula

LaTeX
g=ROE×bg = ROE \times b

Variables

Sustainable growth rate (ratio)
Return on equity (ratio)
Retention ratio (ratio)

Estimates the fastest growth rate a company can sustain using only retained profit and proportionate new debt, with no new equity issuance.