Sustainable Growth Rate

The sustainable growth rate (SGR) is the maximum rate of growth that a company can sustain without having to finance growth with additional equity or debt.

In other words, it is the rate at which the company can grow while using its own internal revenue without borrowing from outside sources (debt or equity). The SGR involves maximizing sales and revenue growth without increasing financial leverage. Achieving the SGR can help a company prevent being over-leveraged and avoid financial distress.

The formula:

Sustainable Growth Rate % = Net Profit % / ((Variable Assets / Sales) - (Variable Liabilities / Sales) - Net Profit %).

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