Sustainable Growth Rate
The sustainable growth rate (SGR) is the maximum rate of growth that a company or social enterprise can sustain without having to finance growth with additional equity or debt. In other words, it is the rate at which the company can grow while using its own internal revenue without borrowing from outside sources. The SGR involves maximizing sales and revenue growth without increasing financial leverage. Achieving the SGR can help a company prevent being over-leveraged and avoid financial distress.First, obtain or calculate the return on equity (ROE) of the company. ROE measures the profitability of a company by comparing net income to the company's shareholders' equity.Then, subtract the company's dividend payout ratio from 1. The dividend payout ratio is the percentage of earnings per share paid to shareholders as dividends. Finally, multiply the difference by the ROE of the company.