Sustainable growth rate
The rate at which a company can grow without raising new capital and without increasing leverage.
Formula
g = ROE \times (1 - \text{Payout ratio})Both quantities are fractions of one. The payout ratio is the share of profit handed to shareholders; the remainder is reinvested and feeds growth.
How to read the number
Ties payout policy to growth directly: paying out more, a company grows more slowly unless it borrows.
When the metric lies
The formula assumes an unchanged return on capital. At a company investing in ever less rewarding projects the computed rate is overstated.
Also known as: sgr