Sustainable growth rate as the rate of dividend (and earnings) growth that can be sustained for a given level of return on equity, assuming that the capital structure is constant through time and that additional common stock is not issued. The reason for studying this concept is that it can help in estimating the stable growth rate in a Gordon growth model valuation.Sustainable growth rate(g) is equal to earnings retention rate , represented by b (that is equal to 1 minus dividend payout ratio) multiplied with return on equity (Jerald E. Pinto, 2020).
Usage
computingSustainableG(retentionRate, ROE)
Value
Input values to two arguments retentionRate and ROE.
According to information provided in Jerald E. Pinto (2020), the method computingSustainableG is developed for computing Sustainable Growth Rate for the values passed to its two arguments.Here, retentionRate is retention rate (that is equal to 1 minus dividend payout ratio), and ROE is return on equity.
References
Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). Wiley Professional Development (P&T). https://bookshelf.vitalsource.com/books/9781119628194