The sustainable growth rate is the maximum growth rate, measured in sales, that a company can afford without adding extra external capital. The formula is:

SG = $\Large \frac{R * {Return\ on\ Equity}}{1 - r*{Return\ on\ Equity}}$

Where
{{{R = Retention rate = 1 - Dividend payout rate}}}

If the actual growth rate is bigger than the sustainable growth rate: [[Cash Absorber]]
If the actual growth rate is smaller than sustainable growth rate: [[Cash Generator]]

bag
finance_public
created
Fri, 04 Feb 2011 13:52:47 GMT
creator
dirkjan
modified
Fri, 04 Feb 2011 13:52:47 GMT
modifier
dirkjan
tags
M12
Term
creator
dirkjan