The sustainable growth rate is a growth rate that is reasonably assumed to be maintained by a company over several years without the additional debt or equity finance. The sustainable growth rate is calculated by using retention rate and multiplying it with return on equity. The formula for sustainable growth rate is as follows;
Sustainable growth rate = SGR = b x ROE
“b” represents the retention rate i.e. (1- dividend payout ratio)
“ROE” is the return on equity i.e. (Net profit/ Total Equity)
SGR is often used as a constant growth rate that remains the same over several years for investment appraisal purposes.
In the chapter, we used Rosengarten Corporation to demonstrate how to
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In the chapter, we discussed one calculation of the sustainable growth
