Sustainable growth is the growth a company can grow at given its profitability and reinvestment decisions without taking on additional debt. The equation for sustainable growth = Retention ratio* Return on Equity. And since the retention ratio is equal to 1- Payout ratio, sustainable growth is also = (1- Payout ratio) * Return on Equity.

We may understand what the sustainable growth rate is and its formula.

The question we address on this page is if a company can grow at the sustainable growth rate? Is that the growth rate you should use in my DCF valuation?

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