SGR
Sustainable Growth Rate
Short definition
The sustainable growth rate is the sales growth that can be funded internally without breaking the target capital structure and the dividend policy. Growth above it needs debt or equity.
Detailed explanation
The formula assumes ROE is cash and sustainable. Accrual profit and NWC bloat raise SGR on paper, not in the till.
IGR is growth with no new debt; SGR is the cap using internal profit with debt at the target leverage. Both are sensitive to margin, asset turnover and the dividend.
Why it matters for the CFO
If the sales target sits above SGR, “growth is good” is a cash crisis. The working-capital illusion is born here.
How it is calculated
SGR ≈ ROE × b (b = dağıtılmayan kâr oranı; hedef yapı korunursa)
b = 1 − dividend / profit. If ROE is not cash, SGR is not a cash-growth cap. The target D/E-held assumption is explicit.
Variables in the formula
- ROE: return on equity
- b: earnings retention ratio
How to read it
SGR is a ceiling band, not fate. Better margin and NWC raise the cap; extra leverage raises it temporarily and eats flexibility.
Numerical example
ROE 20%, no dividend (b = 1) → SGR ≈ 20%. A 40% payout means b = 0.6 → SGR ≈ 12%. A 25% sales target implies a financing gap.
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Definitions are educational. They are not investment, credit or tax advice.