function calculateSustainableGrowthRate() {
var netProfitMargin = parseFloat(document.getElementById("netProfitMargin").value);
var assetTurnover = parseFloat(document.getElementById("assetTurnover").value);
var equityMultiplier = parseFloat(document.getElementById("equityMultiplier").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(netProfitMargin) || isNaN(assetTurnover) || isNaN(equityMultiplier)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (netProfitMargin < 0 || assetTurnover < 0 || equityMultiplier < 0) {
resultDiv.innerHTML = "Please enter non-negative values.";
return;
}
// Calculate Return on Equity (ROE)
// ROE = Net Profit Margin * Asset Turnover * Equity Multiplier
var returnOnEquity = netProfitMargin * assetTurnover * equityMultiplier;
// Calculate Retention Ratio (b)
// b = 1 – Dividend Payout Ratio
// For SGR calculation, we assume the retention ratio is implied by the ROE components
// A common simplification is to assume the ROE itself represents the reinvestment capacity
// However, to be precise with the SGR formula (SGR = ROE * b), we need the retention ratio.
// If dividend payout is not provided, we cannot directly calculate SGR without making assumptions.
// The formula SGR = ROE * b is more common where 'b' is the retention ratio.
// If we are *only* given these three metrics, it implies we are aiming to find the *maximum* growth
// achievable without external financing or issuing new equity, which directly relates to ROE.
// Let's adapt to a common interpretation of SGR using ROE and Retention Ratio (b).
// Since retention ratio is not an input, we cannot calculate SGR directly from the given inputs
// using the standard SGR = ROE * b formula.
// RE-EVALUATION: The most common inputs for SGR are ROE and Retention Ratio.
// The provided inputs (Net Profit Margin, Asset Turnover, Equity Multiplier) *calculate* ROE.
// To calculate SGR, we *need* the Retention Ratio.
// Let's add a Retention Ratio input for a complete SGR calculation.
// *** ADJUSTMENT ***
// I will assume the user *intends* to calculate SGR with a retention ratio,
// and the previous inputs are to calculate ROE first.
// Adding Retention Ratio input:
// I'll modify the HTML to include it.
// — Revised HTML for Retention Ratio —
/*
*/
// If I cannot modify HTML, and only JavaScript, I need to make a strong assumption or error out.
// Given the prompt, I must output COMPLETE HTML. So, I will add the retention ratio input.
// *** Implementing the complete calculation with Retention Ratio ***
var retentionRatio = parseFloat(document.getElementById("retentionRatio").value);
if (isNaN(retentionRatio)) {
resultDiv.innerHTML = "Please enter a valid number for the Retention Ratio.";
return;
}
if (retentionRatio 1) {
resultDiv.innerHTML = "Retention Ratio must be between 0 and 1 (inclusive).";
return;
}
// Final SGR calculation: SGR = ROE * Retention Ratio
var sustainableGrowthRate = returnOnEquity * retentionRatio;
resultDiv.innerHTML =
"Calculated Return on Equity (ROE): " + (returnOnEquity * 100).toFixed(2) + "%" +
"Calculated Sustainable Growth Rate (SGR): " + (sustainableGrowthRate * 100).toFixed(2) + "%";
}
#sustainableGrowthRateCalculator {
font-family: sans-serif;
border: 1px solid #ccc;
padding: 20px;
border-radius: 8px;
max-width: 500px;
margin: 20px auto;
background-color: #f9f9f9;
}
#sustainableGrowthRateCalculator h2 {
text-align: center;
margin-bottom: 20px;
color: #333;
}
.calculator-inputs {
display: grid;
grid-template-columns: 1fr;
gap: 15px;
margin-bottom: 20px;
}
.input-group {
display: flex;
flex-direction: column;
}
.input-group label {
margin-bottom: 5px;
font-weight: bold;
color: #555;
}
.input-group input[type="text"] {
padding: 10px;
border: 1px solid #ccc;
border-radius: 4px;
font-size: 16px;
}
#sustainableGrowthRateCalculator button {
display: block;
width: 100%;
padding: 12px 20px;
background-color: #4CAF50;
color: white;
border: none;
border-radius: 4px;
font-size: 16px;
cursor: pointer;
transition: background-color 0.3s ease;
margin-top: 10px;
}
#sustainableGrowthRateCalculator button:hover {
background-color: #45a049;
}
.calculator-result {
margin-top: 20px;
padding: 15px;
background-color: #e8f5e9;
border: 1px solid #a5d6a7;
border-radius: 4px;
text-align: center;
color: #2e7d32;
}
.calculator-result p {
margin: 0 0 10px 0;
font-size: 1.1em;
}
.calculator-result p:last-child {
margin-bottom: 0;
}
.calculator-result strong {
font-weight: bold;
}
Understanding the Sustainable Growth Rate (SGR)
The Sustainable Growth Rate (SGR) is a crucial financial metric that represents the maximum rate at which a company can grow its sales and earnings without increasing its financial leverage (i.e., without taking on more debt or issuing new equity).
Essentially, it's the growth rate achievable by reinvesting retained earnings back into the business. The SGR formula is often expressed as:
SGR = ROE × b
Where:
ROE (Return on Equity): This measures how effectively a company uses its shareholders' equity to generate profits.
b (Retention Ratio): This is the proportion of net income that a company retains and reinvests in the business, rather than paying out as dividends. It's calculated as 1 – Dividend Payout Ratio.
How ROE is Calculated
In our calculator, we first determine the Return on Equity (ROE) using the DuPont Analysis framework, which breaks down ROE into its core components:
Net Profit Margin: This indicates how much profit is generated for every dollar of revenue. It's calculated as Net Income / Revenue.
Asset Turnover: This measures how efficiently a company uses its assets to generate sales. It's calculated as Revenue / Total Assets.
Equity Multiplier: This shows the extent to which a company's assets are financed by equity. It's calculated as Total Assets / Shareholders' Equity. A higher equity multiplier suggests higher financial leverage.
Why is SGR Important?
Understanding a company's SGR helps investors and management to:
Assess Growth Potential: It provides an objective measure of organic growth capabilities.
Evaluate Financial Health: A sustainable growth rate that is higher than the company's actual growth might indicate potential issues with profitability or efficiency. Conversely, if actual growth exceeds SGR, the company might be relying too heavily on external financing.
Set Realistic Targets: Management can use SGR to set achievable growth objectives that maintain the company's financial structure.
Compare Companies: It allows for comparisons between companies within the same industry.
Example Calculation
Let's consider a company with the following financial data:
This means the company can sustainably grow its earnings and sales by approximately 14.4% per year without changing its financial leverage or needing to raise additional capital from external sources.