Saturday 2 March 2013

What is Sustainable Equity Growth ?

The sustainable growth ratio indicates the maximum earnings growth a firm can have without resorting to other means of financing. The key to sustainable growth is retaining sufficient earnings to reinvest in growth rather than paying out too much in earnings as dividends.

This can be calculated as 1 minus the dividend payout ratio multiplied by ROE .

Sustainable Growth Rate = ( 1- Dividend Payout Ratio )

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