Sustainable Growth Rate CalculatorFree online financial calculator — instant results, no sign-up
Estimate sustainable growth as return on equity multiplied by the retained earnings ratio.
Estimates only, based on the inputs and assumptions shown. This is not financial, investment, tax, or legal advice. Prices, rates and local rules may change; crypto scenarios do not predict returns. Confirm important decisions with a qualified professional.
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About the Sustainable Growth Rate Calculator
The Sustainable Growth Rate Calculator estimates growth supported by retained earnings using return on equity and the dividend payout ratio. It multiplies return on equity by the share of earnings retained, giving a simplified sustainable growth estimate under stable operating and financing assumptions. With the default inputs of 15% return on equity and a 40% dividend payout ratio, the retention ratio is 60% and the sustainable growth rate is 9%.
- Return on equity (%)
- Return on equity measures net income relative to shareholders’ equity for the selected period, entered as a percentage with a default of 15%.
- Dividend payout ratio (%)
- The dividend payout ratio is the percentage of net income paid to shareholders as dividends for the same period, entered as a percentage with a default of 40%.
Formula and method
b = 1 − P/100; g = (R/100) × b; Sustainable growth rate (%) = 100g = R × (1 − P/100). With R = 15 and P = 40: b = 0.60 = 60%, and 100g = 15 × 0.60 = 9%.
- RReturn on equity entered as a percentage, such as 15 for 15%.
- PDividend payout ratio entered as a percentage, such as 40 for 40%.
- bRetention ratio expressed as a decimal: the share of earnings not paid out as dividends.
- gSustainable growth rate expressed as a decimal; multiplying by 100 gives the percentage output.
Convert the dividend payout ratio to a decimal and subtract it from one to find the retention ratio. Multiply the decimal return on equity by that retention ratio, then convert the result to a percentage. Using the defaults, a 40% payout leaves 60% retained, and 15% × 0.60 produces a sustainable growth rate of 9%.
Worked example
These are the calculator's starting values and the results it actually produces for them.
Inputs
- Return on equity15 %
- Dividend payout ratio40 %
Results
- Retention ratio60%
- Sustainable growth rate9%
How to use the Sustainable Growth Rate Calculator
- 1Select return on equity and dividend payout figures that cover the same reporting period.
- 2Enter return on equity in percentage form, or leave the default value of 15.
- 3Enter the dividend payout ratio in percentage form, or leave the default value of 40.
- 4Read the retention ratio output: the default payout ratio gives 60% of earnings retained.
- 5Read the sustainable growth rate output: the default inputs give 9% for the period represented by return on equity.
Reading your result
The retention ratio row shows the share of net income remaining after dividends, not the percentage of revenue retained or cash available. With the default inputs, it is 60%. The sustainable growth rate row shows return on equity multiplied by that retained share; the default result is 9%. For annual return on equity, this is an estimated annual sustainable growth rate, not a promised investment return or a guaranteed revenue forecast.
Limitations
This tool uses the simplified sustainable growth formula ROE × retention ratio. Its usual interpretation assumes no new share issuance, stable profitability and capital efficiency, a consistent dividend policy, and a stable debt-to-equity ratio; debt may still need to grow alongside equity. It does not assess cash flow, borrowing capacity, share repurchases, or investment opportunities. ROE based on beginning versus average equity can affect the estimate, and alternative growth formulas use different timing conventions. Negative earnings, negative equity, or payout ratios outside 0%–100% can make the standard interpretation unreliable.
Common questions
Why does a 40% dividend payout ratio produce a 60% retention ratio?+
The retention ratio is the portion of earnings not distributed as dividends: 100% − 40% = 60%. This retained share is what the calculator multiplies by return on equity.
Why is the default sustainable growth rate 9% rather than 15%?+
The 15% return on equity applies to all earnings generated relative to equity, but only 60% of those earnings are retained. Multiplying 15% by 0.60 gives 9%.
Does sustainable growth mean the company needs no external financing?+
Not necessarily. The standard sustainable growth interpretation excludes new equity issuance but allows borrowing to increase while maintaining a stable debt-to-equity ratio. Growth supported without any external financing is a different concept.
Will lowering the dividend payout ratio always increase sustainable growth?+
With positive return on equity held constant, a lower payout ratio raises the calculated retention ratio and sustainable growth rate. In practice, retaining more earnings does not guarantee growth because the company must reinvest them productively and maintain its return on equity.
Does the calculator save my information?+
Calculations run in your browser. While signed in, inputs and results are automatically recorded in account history; saving a result creates a separate saved record.
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Results are estimates for informational purposes and are not financial, medical or legal advice.