![]() In general, the higher the sustainable growth rate (SGR), the greater its potential upside.īut greater potential returns cannot come without more downside risks, e.g. The sustainable growth rate (SGR) can be a useful indicator of which stage of its life cycle a company is currently in. Sustainable Growth Rate (SGR) and Company Lifecycle Debt Issuances: Companies can raise capital via borrowing agreements, where lenders provide capital in exchange for interest payments and the return of principal at maturity.Equity Issuances: Companies can raise capital by selling off pieces of ownership to institutional and/or retail investors for capital.the accumulated net earnings not paid out as dividends to shareholders). Internal Funding:: Companies can use their retained earnings (i.e.Mature companies that are profitable and have more established market positions can opt to fund themselves from three sources: ![]() Most early-stage companies that are either unprofitable or barely profitable are self-funded until reaching the point where external financing becomes an absolute necessity, typically in the form of equity issuances. the mixture of debt and equity to fund operations and asset purchases. The capital structure refers to how a company is funding its current growth (and future growth), i.e. The sustainable growth rate is a company’s growth rate that can continue under its current capital structure.Ĭonceptually, the sustainable growth rate represents the rate at which a company can maintain its growth without requiring additional financing from external sources. How to Calculate Sustainable Growth Rate? the mixture of debt and equity – is maintained. The Sustainable Growth Rate (SGR) is the approximate rate at which a company could grow if its current capital structure – i.e.
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