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Sustainable Growth Rate

This is the approximate rate at which a company could grow using internally generated cash, without issuing additional debt or equity.

For example, if a company's sustainable growth rate is 12%, it should be able to boost future earnings at a rate of up to 12% per year without having to raise new cash through financing. The sustainable growth rate indicates how fast a company can grow given its current profitability, dividend policy, and debt levels.

The sustainable growth rate equation only accounts for growth the company can fund from internally generated resources. It doesn't account for growth the company may fund from increasing debt levels or issuing equity.

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