Self-Sustainable Growth Rate (SSGR) is the maximum rate at which a company can grow using only its internal resources without external financing. It's calculated as ROE × Retention Ratio. For example, a company with 15% ROE and 70% retention ratio has an SSGR of 10.5%, meaning it can grow sales/assets at this rate without changing its financial leverage or requiring external funding.

SSGR is calculated by multiplying Return on Equity (ROE) by the Retention Ratio. The formula is: SSGR = ROE × Retention Ratio, where ROE = Net Income / Shareholders' Equity and Retention Ratio = 1 - Dividend Payout Ratio. For example, if a company has 20% ROE and retains 60% of its earnings (60% retention ratio), its SSGR would be 12% (20% × 0.6).

SSGR helps investors identify companies that can fund their own growth without diluting equity or increasing debt. A high SSGR indicates financial strength and potential for sustainable long-term growth. It also serves as a reality check on management's growth targets—if a company consistently targets growth rates above its SSGR, it will likely face funding gaps requiring external capital, which may impact shareholder returns through dilution or increased financial risk.

When a company grows faster than its SSGR, it creates a funding gap that must be filled with external financing—either debt or equity. This often leads to higher financial leverage, potential share dilution, or both. For example, a company with 8% SSGR growing at 15% would need external funding equal to approximately 7% of its asset base each year, potentially changing its capital structure and risk profile.

A company can increase its SSGR by: 1) Improving profitability and ROE through better operating margins, asset turnover, or financial leverage; 2) Increasing its retention ratio by reducing dividend payouts; 3) Optimizing working capital to reduce operating cash needs; or 4) Improving asset utilization to generate more sales from existing assets. For example, improving ROE from 15% to 18% while maintaining a 70% retention ratio would increase SSGR from 10.5% to 12.6%.

A good SSGR varies by industry and company maturity. Generally, 10-15% is considered strong for established companies, while 15-25% might be expected for growth companies. Mature industries like utilities might have SSGRs of 5-8%, while technology companies could have 20%+ rates. The key is comparing a company's SSGR to both its industry peers and its own historical growth targets to assess sustainability of its growth strategy.

SSGR and dividend policy are directly related through the retention ratio. A higher dividend payout reduces the retention ratio, lowering SSGR. Companies must balance shareholder return preferences against growth opportunities. For example, a company with 15% ROE paying out 70% of earnings in dividends (30% retention) would have an SSGR of 4.5%, limiting its internal growth capacity. Growth-focused companies typically have lower dividend payouts to maintain higher retention ratios and SSGRs.

Industries with higher SSGRs typically have strong ROEs and lower capital distribution needs. Technology, software, and asset-light businesses often have higher SSGRs (15-25%) due to high ROEs and lower dividend payouts. Healthcare and consumer staples companies also tend to have solid SSGRs in the 10-15% range. Capital-intensive industries like utilities, telecoms, and heavy manufacturing generally have lower SSGRs (4-8%) due to lower ROEs and higher capital requirements.

Yes, SSGR can be negative when a company has negative ROE (operating at a loss) but still maintains a positive retention ratio. A negative SSGR indicates the company is consuming capital rather than generating it and cannot sustain operations without external funding. For example, a company with -10% ROE and 100% retention ratio would have a -10% SSGR, meaning it's depleting shareholders' equity by 10% annually and requires external capital just to maintain its current operations.

SSGR is a forward-looking measure of potential growth capacity based on financial structure (ROE × Retention Ratio), while CAGR (Compound Annual Growth Rate) is a backward-looking measurement of actual historical growth over a specific period. SSGR indicates what growth rate is sustainable without external funding, while CAGR simply measures the rate at which something has grown, regardless of how that growth was financed. A consistent gap between historical CAGR and SSGR may indicate unsustainable growth practices.