Sustainable Growth Rate Calculator - Higgins SGR Model

A sustainable growth rate calculator estimates the maximum growth rate a company can fund from retained earnings without raising outside equity or new debt. Use it to test whether a planned growth rate fits the Higgins internal-growth model, to compare companies with different payout policies, to brief a board on dividend sustainability, or to challenge a forecast that looks stronger than the financials can support. The SGR is a planning signal, not a forecast, so pair it with cash flow and leverage review before relying on the result.

• • Dividend policy review: Test how much room a board has to keep the current dividend while still growing the business from retained earnings.
• • Growth plan validation: Compare the SGR with a forecast sales growth rate to see if the plan can be funded from retained earnings.
• • Peer comparison: Apply the same formula across companies to compare how much growth each one can fund from internal sources.
• • Investor education: Show the link between payout policy, profitability, and the growth ceiling a company can hit without dilution.

The Higgins SGR assumes the firm keeps its debt-to-equity ratio, holds its dividend policy, and grows only by plowing retained earnings back into the business. Those assumptions make the result a benchmark, not a hard ceiling. Real companies raise debt, issue shares, change payout policy, or accept slower growth instead of staying inside the model.

Use the most recent annual or trailing-twelve-month figures so net income, dividends, and equity are on the same basis. Mixing a quarterly net income with a year-end balance sheet is a common reason the SGR looks odd, so document the period alongside the result.

Because retention ratio is 100% minus payout ratio, the Dividend Payout Ratio Calculator is the natural first stop when you want to translate dividend policy into a retention figure.

The calculator turns net income, dividends paid, and shareholders' equity into a retention ratio and a return on equity, then multiplies them to get the Higgins SGR.

• Net income: Earnings for the period after interest, taxes, and preferred dividends.
• Dividends paid: Common dividends declared or paid during the same period as net income.
• Shareholders' equity: Book value of total equity, ideally at the same period end as net income.
• Retention ratio: The share of net income kept inside the company after dividends, between 0% and 100% in a healthy period.
• Return on equity: Net income divided by shareholders' equity, showing how efficiently the equity base earns profit.

The retention ratio lives between 0% and 100% when net income is positive. A 60% retention ratio means the company pays out 40% of earnings as dividends and reinvests the rest. ROE captures how much profit the equity base produces, so a high-ROE firm can grow faster from the same retention rate.

The SGR result is a percentage growth rate. A 10% SGR means the model thinks the company can grow sales, total assets, and equity by 10% per year without issuing new equity or taking on new debt, as long as margins, payout, and leverage stay in place.

According to Corporate Finance Institute, the sustainable growth rate equals the retention ratio multiplied by return on equity, and the model assumes the firm does not raise outside capital to grow.

When ROE looks high because of leverage, the ROIC Calculator shows what the same operating profit looks like on total invested capital and helps you check whether the SGR is built on real efficiency.

Each input drives part of the result, so reading the components helps avoid treating the percentage as a single hidden judgment.

SGR is not the same as historical growth, expected growth, or analyst forecasts. It is a benchmark that says how much a firm could grow if nothing else changes. A planned growth rate higher than the SGR usually needs higher retention, higher ROE, or outside capital.

When a company keeps a high payout, the SGR is capped because retention is small. When a company pays no dividend, the SGR is just ROE, which is why many growth-stage tech firms can match the SGR for short periods without external financing.

If a planned growth rate is higher than the SGR, the AFN Calculator estimates how much extra funding the gap requires, given asset intensity, profit margin, and the same retention ratio.

Pull three figures from the same period and read the components, not just the headline percentage.

1. 1 Pick a period: Use the most recent annual filing or trailing-twelve-month figures. The income-statement and balance-sheet dates should be at the same point in the calendar year.
2. 2 Enter net income: Take the figure from the income statement, after interest, taxes, and any preferred dividend claims. If the company reported a loss, enter the negative number to see the negative SGR.
3. 3 Enter dividends paid: Use total common dividends for the same period as net income. Treat one-time special dividends carefully because they inflate the dividend input and shrink the SGR.
4. 4 Enter shareholders' equity: Use book value of total equity, not market value. If you track average equity, document that choice so the ROE is comparable across periods.
5. 5 Read the components: Inspect retention, ROE, and the final SGR. A weak SGR can come from a low payout, a low ROE, or both, and the components show which one to fix first.

For a board memo, you might enter $3,000,000 of net income, $2,100,000 of dividends, and $25,000,000 of equity. Retention is 30%, ROE is 12%, and the SGR is 3.60%. If management plans 8% growth, the model says the company needs outside capital, a lower payout, or higher ROE to get there.

When the SGR looks weak, the Return on Investment (ROI) Calculator can frame a specific reinvestment project to see if the marginal return on a new investment is high enough to lift ROE and the SGR.

The SGR is a planning discipline. It forces a discussion of payout, profitability, and growth together instead of treating them as separate conversations.

• • Tests growth assumptions: Compare a planned growth rate with the SGR to see if the plan is internally fundable before it goes to the board.
• • Surfaces payout trade-offs: Shows how raising the dividend shrinks the SGR and pushes the company toward outside capital for the same growth target.
• • Links ROE and growth: Connects profitability on the equity base with the growth ceiling, so improving ROE has a direct growth payoff.
• • Standardizes peer review: Using the same formula across companies makes growth-capacity comparisons more honest than sales growth alone.
• • Feeds valuation models: Inputs to dividend discount, residual income, and other models that depend on a realistic internal growth rate.

The sustainable growth rate calculator works best as a baseline, not a target. A company with an 8% SGR that plans 12% growth either needs to lift retention, lift ROE, accept outside capital, or slow the plan. Naming that trade-off in the memo is more useful than arguing about which number is correct.

For investors, SGR shows how much of a company's growth is internal. A firm that grows 25% on a 4% SGR is funding most of that growth with new debt or new shares, which changes the risk picture and the dilution math.

Once the SGR sets a planning ceiling, the CAGR Calculator shows the realized compound annual growth rate for past periods so you can see whether the company has historically grown inside or above the model.

Several inputs can move the SGR without telling you anything new about the business. Read the context behind each figure before reacting.

• • The model assumes the firm does not raise new equity or new debt. Issuing either changes the capital structure the model assumes and breaks the direct comparison.
• • A constant debt-to-equity ratio is assumed, so leveraged buyouts, recapitalizations, or large asset sales are not captured by the formula.
• • The SGR is not a probability of growth, a forecast, or a recommendation. It is a planning benchmark that has to be paired with cash flow, leverage, and management actions.

For public companies, annual reports and quarterly statements are the cleanest source. Use the statement notes to handle preferred dividends, restatements, and discontinued operations before treating the SGR as a planning number.

If the SGR is near zero, the company can still grow by raising outside capital, but the model is not the right tool to size that growth. Use it to set the floor, not the ceiling, of the planning conversation.

According to Wikipedia, the sustainable growth rate is the maximum growth rate a firm can sustain without external equity or debt financing, based on the Higgins model that pairs return on equity with the retention ratio.

According to Investopedia, the sustainable growth rate is the maximum growth rate a company can achieve without external financing, computed as retention ratio times return on equity, with the assumption of a constant debt-to-equity ratio.

If net income moves a lot, the EPS Growth Calculator helps separate one-time accounting effects from a steady trend, which keeps the SGR reading closer to the underlying earnings power.