Sustainable growth rate is a measure of how much a company can grow without borrowing more money. It is based on the company’s return on common equity and dividend payout ratio. The sustainable growth rate shows how fast a company can expand its operations using its own profits and reinvesting them. The formula for sustainable growth rate is:
Sustainable growth rate = Return on common equity * (1 - Dividend payout ratio)
Where:
- Return on common equity is R0025,
return_com_eqy
- Dividend payout ratio is R0034,
dvd_payout_ratio