Sustainable Growth Rate Calculator
Enter your company's net income, dividends paid, total shareholders' equity, and total assets to calculate the sustainable growth rate (SGR) and the internal growth rate (IGR). The calculator also shows the full DuPont decomposition of ROE, the retention ratio, return on assets, and a multi-year growth projection chart so you can see how fast the business can expand without outside financing.
What is the sustainable growth rate (SGR)?
The sustainable growth rate (SGR) is the maximum rate at which a company can grow its sales, earnings, and dividends without altering its financial leverage or issuing new shares. The concept was formalised by Robert C. Higgins in 1977. At the SGR, the firm finances all incremental assets purely from retained earnings while keeping its debt-to-equity ratio constant, so existing shareholders are not diluted and the balance sheet structure remains the same. If actual growth exceeds the SGR, the company must either borrow more, issue new equity, cut dividends, or improve profitability - any of which changes the capital structure. The SGR therefore acts as a benchmark that links growth strategy to financial sustainability.
SGR formula and DuPont breakdown
The standard Higgins formula is SGR = b x ROE, where b is the retention ratio (1 minus the dividend payout ratio) and ROE is return on equity (net income divided by shareholders' equity). Because ROE can itself be decomposed using DuPont analysis into Profit Margin x Asset Turnover x Equity Multiplier, the SGR ultimately depends on four levers: how profitable sales are, how efficiently assets generate sales, how much leverage the firm carries, and how much of the profit it retains. The internal growth rate (IGR) uses the same formula but replaces ROE with ROA (return on assets), giving the growth rate achievable with zero external financing of any kind.
How to interpret and use the SGR
Compare the SGR to the company's actual or planned revenue growth rate. If planned growth exceeds the SGR, a funding gap exists and must be addressed. Management can close the gap by raising the retention ratio (cutting or eliminating dividends), improving profit margins, turning assets more efficiently, accepting higher financial leverage, or raising equity. If planned growth is well below the SGR, the firm is generating more internal capital than it needs, which typically means increasing dividends, buying back shares, or making acquisitions. The SGR is especially useful when benchmarking against industry peers - a persistently high SGR relative to competitors often indicates superior unit economics or disciplined capital allocation.
SGR versus internal growth rate
Both the SGR and IGR measure self-funded growth capacity, but they differ in one key assumption. The IGR assumes the company takes on no new debt whatsoever - it grows only from retained earnings and the assets those earnings can support. The SGR relaxes that constraint and allows the firm to borrow proportionally as equity grows, keeping its capital structure constant. Because debt amplifies the return on equity through the equity multiplier, the SGR is almost always higher than the IGR for any firm that carries debt. For an all-equity firm with no leverage, the two rates are identical. Start-ups and small businesses that cannot access debt markets often find the IGR more relevant; established firms with stable credit ratings typically use the SGR as their planning benchmark.
SGR benchmarks by sector (approximate)
| Sector | Typical ROE | Typical Retention | Approx. SGR range |
|---|---|---|---|
| Technology (software) | 20-40% | 80-100% | 16-40% |
| Consumer staples | 15-25% | 50-70% | 8-18% |
| Healthcare | 15-30% | 60-80% | 9-24% |
| Industrials | 10-20% | 50-70% | 5-14% |
| Utilities | 8-12% | 30-50% | 2-6% |
| Financials (banks) | 8-15% | 40-60% | 3-9% |
| Energy | 5-15% | 30-60% | 2-9% |
Typical sustainable growth rates vary widely by industry. High-margin technology companies often have high SGRs; capital-intensive industries tend to have lower ones. These are illustrative ranges only.
Frequently asked questions
What does a sustainable growth rate tell you?
The SGR tells you the fastest a company can grow while keeping its financial structure (debt-to-equity ratio, payout policy, and profit margins) unchanged. Growth above the SGR forces management to make a structural change - more debt, a new equity issue, or a dividend cut. Growth below the SGR means the business is generating more cash than it can profitably reinvest at current returns.
What is the difference between SGR and internal growth rate?
Both measure self-funded growth, but the SGR permits the firm to take on new debt proportionally as equity grows (keeping the debt-to-equity ratio constant), while the IGR assumes zero new external financing. The SGR uses ROE in the formula; the IGR uses ROA. Because leverage amplifies ROE above ROA, the SGR is higher than the IGR for any leveraged firm.
How can a company increase its sustainable growth rate?
There are four levers: (1) raise net profit margin by cutting costs or pricing more effectively; (2) improve asset turnover by generating more sales per dollar of assets; (3) increase the equity multiplier by taking on more debt (which also raises risk); and (4) raise the retention ratio by reducing dividends. Any combination that increases the product b x ROE lifts the SGR.
What if a company's actual growth exceeds its SGR?
Sustained growth above the SGR is mathematically impossible without a change in financial structure. In practice, companies either borrow more (raising the equity multiplier), issue new shares (diluting existing holders), cut dividends (raising retention), or improve returns (a harder but more durable fix). Many high-growth companies deliberately operate above their SGR for a period by accepting temporary leverage or dilution, planning to restore the balance once growth moderates.
Can the sustainable growth rate be negative?
Yes. If net income is negative (a loss), ROE is negative, and the SGR is negative, meaning the company is shrinking its equity base even without paying dividends. A negative SGR signals financial distress and that retained losses (rather than retained earnings) are eroding the capital base.
What inputs do I need to calculate the SGR?
You need net income, dividends paid, and total shareholders' equity from the financial statements. For the IGR and the DuPont breakdown, you also need total assets and (optionally) revenue. All of these figures are available in any company's annual report or quarterly filing.
Is a higher SGR always better?
Not necessarily. A very high SGR driven by extreme leverage (a high equity multiplier) raises financial risk - the same debt that boosts ROE above ROA can cause distress if earnings fall. A high SGR from genuinely superior margins and asset efficiency is more durable. Always look at the DuPont breakdown to understand which component is driving the number.