The Sustainable Growth Rate (SGR) is the maximum rate of growth that an organization can manage

without having finance growth with additional capital or debt or without damaging profitability and
efficiency. It is a measuring tool for predicting the growth rate in the long term. It can be calculated
by the past data of the company from its beginning.

SGR is an indicator in which stage the company is currently positioned in its lifespan. It is a
very important tool to finance from various sources, dividend payout, a viable strategy.

It is also also a very important tool for investors to determine how likely the company can
default over loans. A high SGR can be deceptive; also, the company may have invested in Research &
Development and projects with optimistic NPV(Net Present Value), which can significantly delay the
repayment of loans. A high growth rate normally measured as riskier as it is more likely to observe
larger earnings instability from time to time.

SGR has below three variants.

SGR Model

Based on Target Based on Drivers Based on

Capital Structure of ROE Operating Cycle