This tutorial explains how the Sustainable Growth Rate works, including its meaning, formula, calculations, and interpretation. Furthermore, using the Colgate Case Study, we will demonstrate how to calculate Sustainable Growth Rate in Excel. You can download the Colgate Sustainable Growth Rate template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/
What is a Sustainable Growth Rate?
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The sustainable growth rate indicates how much a company may grow in the future without relying on debt or equity infusions.
Formula
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Sustainable Growth Rate Formula = Retention Ratio × Return on Equity
Interpretation
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– It is preferable to have a higher Return on Equity Ratio as well as a Retention Ratio.
– A higher Return on Equity Ratio indicates that earnings on the same level of equity investments are higher.
– If a company maintains a higher Retention Ratio, it indicates that it has future growth potential and is confident in delivering a better return on the money it is willing to retain.
For more details, you can refer to our article – https://www.wallstreetmojo.com/sustainable-growth-rate-formula/
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