Simplified sustainable-growth scenario
Enter positive net income, dividends from zero through net income, and average shareholders’ equity for the same period. The dividend range keeps this calculator’s retention scenario between zero and one; it is not a claim that losses or larger distributions are invalid accounting states.
Source-backed definitions
The Drake instructional formulation defines:
The estimate assumes stable profitability, retention policy, asset use, and capital structure. An unchanged leverage ratio can require proportional new borrowing as retained equity grows.
Publisher arithmetic and example
Retained earnings equal net income minus dividends. That subtraction, percentage conversion, and display rounding are transparent publisher arithmetic.
The defaults are illustrative, not representative company data. With 2,000,000 of net income, 1,000,000 of dividends, and 10,000,000 of average equity, retention is 50.00%, book return on average equity is 20.00%, and the simplified sustainable growth rate is:
Limits
This is the bounded Drake instructional formulation, not a claim of equivalence to every model attributed to Higgins. Inputs can be period-sensitive. The estimate is not self-funded because proportional debt may rise, and it is not a demand or sales forecast. No benchmark, recommendation, or guarantee is provided.
Source
- Pamela Peterson Drake, Sustainable growth: Notes on the concept and estimation of sustainable growth rates — PDF page 1 supports the retention-times-ROE formulation; page 2 supports the unchanged-capital-structure and proportional-borrowing conditions; page 6 summarizes the bounded interpretation.