Difference between revisions of "Sustainable Growth Rate"
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| − | + | 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 = <math>\frac{R * {Return\ on\ Equity}}{1 - r*{Return on Equity}}</math> | ||
| + | |||
| + | Where | ||
| + | <math>R = Retention rate = 1 - Dividend payout rate</math> | ||
| + | |||
| + | If the actual growth rate is bigger than the sustainable growth rate: [[Cash Absorber|Cash Absorber]] | ||
| + | If the actual growth rate is smaller than sustainable growth rate: [[Cash Generator|Cash Generator]] | ||
| + | |||
[[Category:finance]] | [[Category:finance]] | ||
Latest revision as of 19:25, 27 August 2020
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 =
Where
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
