Module 29.3 LOS 29.o: Using DuPont ROE to estimate a sustainable growth rate

The sustainable growth rate, the rate at which earnings and dividend can grow indefinitely, can be calculated by multiplying the earnings retention ratio with the return on equity:

SGR = b × ROE


b = earnings retention rate = 1 − dividend payout rate

ROE = return on equity

However, we can also us the Dupont Model to estimate the growth rate. By modifying the Dupont to the PRAT model ( profit margin, retention rate, asset turnover and financial leverage) we can back out the value of g.

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