What Growth Rate Can This Business Sustain?

Fundamental growth links return on equity (ROE) to the fraction of profits retained. No model or analyst forecasts — just pure financial mechanics.

Fundamental GrowthROERetention RatioSustainable Growth

Live Result

0.108

ƒ: ROE * retention_ratioraw: 0.108000

ƒ(x)

Use variable names from the panel above (e.g. FV, r, n) — or type numbers directly: 10000 / (1 + 0.08)^10

ROE% as decimal

Return on Equity — net income / book equity

ROE = 0.18

retention_ratio% as decimal

Fraction of earnings retained (1 − payout ratio)

retention_ratio = 0.60

payout_ratio

Fraction of earnings paid as dividends

payout_ratio = 0.40

💡 You can also enter values directly in the formula: 10000 / (1 + 0.08)^10

⬇ Export Calculation

Exports a plain .txt file with your expression, formula, all variable values, result, and educational notes — ready to paste into any report, Word doc, Notion, or Google Docs.

The exported file includes the formula in standard mathematical notation — you can paste it directly into Excel, Google Sheets, or back into FinanceSheep.

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Learn: What Growth Rate Can This Business Sustain?

Estimating Growth · Educational Guide

The Core Idea

How fast can a company grow without issuing new shares or taking on unsustainable debt? The answer depends on only two things: how profitable is the equity (ROE), and how much of the profit is kept vs paid out?

How It Works

Fundamental growth = ROE × retention ratio. If ROE is 18% and the company retains 60% of earnings, sustainable growth = 18% × 60% = 10.8%. This is the growth you can expect purely from reinvesting profits, without any external funding.

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Real-World Example: Apple: ROE ~145% (2023), but pays dividends and buys back stock heavily. Retention ratio ~50%. Fundamental growth = 145% × 50% = 72.5%. But this is distorted by huge buybacks. A more typical company: ROE = 15%, retention = 70% → growth = 10.5%.

What Growth Rate Can This Business Sustain?

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