Calculate Sustainable (SGR) and Internal (IGR) Growth Rates
Return on Assets (ROA):–
Return on Equity (ROE):–
Retention Ratio (b):–
Sustainable Growth Rate (SGR):–
Internal Growth Rate (IGR):–
function calculateGrowthRates() {
// 1. Get Input Values
var netIncome = parseFloat(document.getElementById('netIncome').value);
var totalAssets = parseFloat(document.getElementById('totalAssets').value);
var totalEquity = parseFloat(document.getElementById('totalEquity').value);
var totalDividends = parseFloat(document.getElementById('totalDividends').value);
// 2. Validation
if (isNaN(netIncome) || isNaN(totalAssets) || isNaN(totalEquity) || isNaN(totalDividends)) {
alert("Please enter valid numbers for all fields.");
return;
}
if (totalAssets <= 0 || totalEquity netIncome) {
alert("Warning: Dividends exceed Net Income. This implies negative retention.");
}
// 3. Calculation Logic
// Retention Ratio (b) = (Net Income – Dividends) / Net Income
// If Net Income is 0, handle division by zero
var retentionRatio = 0;
if (netIncome !== 0) {
retentionRatio = (netIncome – totalDividends) / netIncome;
}
// Return on Assets (ROA)
var roa = netIncome / totalAssets;
// Return on Equity (ROE)
var roe = netIncome / totalEquity;
// Internal Growth Rate (IGR) Formula: (ROA * b) / (1 – (ROA * b))
var igrNum = roa * retentionRatio;
var igrDenom = 1 – igrNum;
var igr = 0;
if (igrDenom !== 0) {
igr = igrNum / igrDenom;
}
// Sustainable Growth Rate (SGR) Formula: (ROE * b) / (1 – (ROE * b))
// Note: Some simplified texts use ROE * b, but the precise formula adjusting for
// beginning-of-period equity is (ROE*b) / (1 – ROE*b) assuming ROE is based on end-of-period equity.
var sgrNum = roe * retentionRatio;
var sgrDenom = 1 – sgrNum;
var sgr = 0;
if (sgrDenom !== 0) {
sgr = sgrNum / sgrDenom;
}
// 4. Update Display
document.getElementById('roaResult').innerHTML = (roa * 100).toFixed(2) + "%";
document.getElementById('roeResult').innerHTML = (roe * 100).toFixed(2) + "%";
document.getElementById('retentionResult').innerHTML = (retentionRatio * 100).toFixed(2) + "%";
document.getElementById('igrResult').innerHTML = (igr * 100).toFixed(2) + "%";
document.getElementById('sgrResult').innerHTML = (sgr * 100).toFixed(2) + "%";
// Show results
document.getElementById('resultsDisplay').style.display = "block";
}
Understanding the Maximum Growth Rate Calculator
In corporate finance, determining the maximum rate at which a company can grow is crucial for strategic planning. Growth requires capital, and businesses are generally constrained by their ability to generate funds internally or raise funds externally. This calculator computes two critical metrics: the Internal Growth Rate (IGR) and the Sustainable Growth Rate (SGR).
1. Sustainable Growth Rate (SGR)
The Sustainable Growth Rate represents the maximum growth rate a company can achieve without issuing new equity, while maintaining a constant debt-to-equity ratio. It answers the question: "How fast can we grow using only our own profits and matching debt?"
SGR = (ROE × b) / (1 – (ROE × b))
Where ROE is the Return on Equity and b is the Retention Ratio (the percentage of earnings kept in the company rather than paid out as dividends). A higher SGR indicates the company is efficient at generating profit from shareholder capital and reinvesting it effectively.
2. Internal Growth Rate (IGR)
The Internal Growth Rate is a more conservative metric. It is the maximum growth rate a firm can achieve using only retained earnings, without issuing any new debt or equity.
IGR = (ROA × b) / (1 – (ROA × b))
Where ROA is the Return on Assets. If a company attempts to grow faster than its IGR, it will eventually deplete its cash reserves and require external financing (debt or equity) to sustain operations.
Key Inputs Explained
Net Income: The total profit of the company after all expenses, taxes, and costs.
Total Assets: The sum of all resources owned by the company (cash, inventory, property, etc.).
Shareholder's Equity: The amount of money invested by owners plus retained earnings.
Total Dividends: The portion of net income paid out to shareholders. The remaining amount constitutes retained earnings.
How to Increase Your Maximum Growth Rate
If your calculated SGR or IGR is lower than your target growth, you have four primary levers to pull:
Increase Profit Margin: Improving operational efficiency to generate more net income from sales.
Increase Asset Turnover: Generating more sales for every dollar of assets owned.
Increase Financial Leverage: (For SGR only) Using more debt financing relative to equity.
Increase Retention Ratio: Reducing dividends to keep more capital inside the business for reinvestment.