Calculate the 2021 Sustainable Growth Rate

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2021 Sustainable Growth Rate (SGR) Calculator

Calculation Results

Return on Equity (ROE): 0%

Retention Ratio (b): 0%

2021 Sustainable Growth Rate: 0%

Understanding the 2021 Sustainable Growth Rate

The Sustainable Growth Rate (SGR) is a critical financial metric that indicates the maximum rate at which a company can grow its sales without needing to fund that growth with external equity or additional debt. Looking back at 2021 financial statements, calculating the SGR helps analysts understand if a company's expansion was organically supported or if it relied heavily on external financing.

The SGR Formula

To calculate the Sustainable Growth Rate for the 2021 fiscal year, we use the following formula:

SGR = (ROE × Retention Ratio) / (1 – (ROE × Retention Ratio))
  • Return on Equity (ROE): Calculated as Net Income divided by Shareholders' Equity.
  • Retention Ratio (b): The percentage of net income that is kept in the business (reinvested) rather than paid out as dividends. Formula: 1 – (Dividends / Net Income).

2021 Practical Example

Suppose a technology firm reported the following in their 2021 annual report:

  • Net Income: $1,000,000
  • Shareholders' Equity: $5,000,000
  • Dividends Paid: $200,000

First, calculate the ROE: $1,000,000 / $5,000,000 = 20% (0.20).
Next, calculate the Retention Ratio: 1 – ($200,000 / $1,000,000) = 80% (0.80).
Finally, apply the SGR formula: (0.20 × 0.80) / (1 – (0.20 × 0.80)) = 0.16 / 0.84 = 19.05%.

This means the company could have grown its operations by 19.05% in 2021 using only its internal resources.

Why 2021 Data Matters

The year 2021 was a period of significant recovery and volatility. Companies often faced supply chain constraints and fluctuating demand. Analyzing the SGR from this period allows investors to see which companies maintained high internal efficiency versus those that became over-leveraged to keep up with the post-pandemic market surge.

function calculateSGR() { var netIncome = parseFloat(document.getElementById('netIncome').value); var equity = parseFloat(document.getElementById('shareholderEquity').value); var dividends = parseFloat(document.getElementById('dividendsPaid').value); var resultDiv = document.getElementById('sgr-result-container'); if (isNaN(netIncome) || isNaN(equity) || isNaN(dividends)) { alert("Please enter valid numerical values for all fields."); return; } if (netIncome <= 0 || equity netIncome) { alert("Warning: Dividends exceed Net Income. This implies a negative retention ratio."); } // 1. Calculate ROE var roe = netIncome / equity; // 2. Calculate Retention Ratio (b) var retentionRatio = (netIncome – dividends) / netIncome; // 3. Calculate SGR // Formula: (ROE * b) / (1 – (ROE * b)) var roeTimesB = roe * retentionRatio; if (roeTimesB >= 1) { document.getElementById('resSGR').innerText = "Infinite/Error"; document.getElementById('sgr-interpretation').innerText = "The growth parameters suggest a rate that exceeds the mathematical model's limits."; } else { var sgr = (roeTimesB / (1 – roeTimesB)) * 100; document.getElementById('resROE').innerText = (roe * 100).toFixed(2); document.getElementById('resRetention').innerText = (retentionRatio * 100).toFixed(2); document.getElementById('resSGR').innerText = sgr.toFixed(2); var interpretation = ""; if (sgr > 20) { interpretation = "The company showed a very strong capacity for internal growth in 2021."; } else if (sgr > 10) { interpretation = "The company maintained a healthy sustainable growth rate for the 2021 fiscal year."; } else { interpretation = "The 2021 SGR indicates conservative growth potential without external capital."; } document.getElementById('sgr-interpretation').innerText = interpretation; } resultDiv.style.display = 'block'; }

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