The sustainable growth rate is an important tool to determine the long-term growth, capital acquisitions, cash flow projections and borrowing strategies. Here is the sustainable growth rate formula provided below to calculate the SGR of the company. To calculate, subtract dividend payout ratio from one. Multiply the obtained value with the return on equity. The result is the sustainable growth rate. It is calculated in the form "ROE x (1 - dividend-payout ratio)".
The concept of was framed by Robert C. Higgins. It is the calculation of company's maximum growth rate by using the internal financial resources. The sustainable growth rate formula is used to assess whether a business can fund its planned revenue growth.