Sustainable Growth Rate (SGR): Key Metric for Australian Businesses in 2025

Is your business set for healthy growth or heading towards overextension? The Sustainable Growth Rate (SGR) is taking centre stage in 2025 as Australian companies balance ambition with financial reality. Understanding SGR can help you avoid the pitfalls of unsustainable expansion and steer your business towards long-term success.

What Is the Sustainable Growth Rate (SGR)?

The Sustainable Growth Rate (SGR) measures how fast a company can grow its sales, earnings, and assets using only its own resources—without relying on external debt or equity. In essence, it answers the question: How much can you grow before you need to borrow or seek outside investment?

SGR is typically calculated as:

• SGR = Return on Equity (ROE) × (1 – Dividend Payout Ratio)

This means your SGR depends on how profitable you are (ROE) and how much profit you retain versus pay out as dividends. For privately held SMEs, the focus is often on reinvested profits, while listed companies balance growth ambitions with shareholder returns.

Why SGR Matters More Than Ever in 2025

Australia’s business landscape in 2025 is marked by cautious optimism. GDP is projected to grow by around 2.2%^[1], but with interest rates still elevated and credit conditions tighter than a few years ago, many businesses are feeling the pressure to “grow smart”.

Here’s why SGR is on every CFO’s radar this year:

• Bank lending is more selective: Lenders are scrutinising balance sheets and cash flow forecasts more closely, making it tougher to rely on debt-fuelled expansion.
• Equity finance is harder to secure: Investors are demanding clearer paths to profitability, not just top-line growth.
• ESG and sustainability reporting is tightening: The ASX and regulators are pushing for transparent, sustainable practices—meaning reckless growth can damage your reputation and access to capital.

Take the example of an Australian food manufacturer. By focusing on SGR, the company decides to prioritise process automation over rapid geographic expansion. The result? Steady growth, improved margins, and less financial risk—even as competitors struggle with overextended supply chains.

Calculating and Improving Your SGR: Practical Steps

Ready to put SGR to work for your business? Here’s a step-by-step approach for 2025:

1. Determine your ROE: Calculate your net profit after tax, divide by average shareholder equity for the year. For most SMEs, this means reviewing your annual accounts and adjusting for any major one-off items.
2. Assess your dividend or owner’s draw policy: How much profit do you retain versus distribute? The more you reinvest, the higher your SGR.
3. Run the numbers: Plug your figures into the SGR formula and compare to your actual growth targets. Are you planning to grow faster than your SGR? If so, you’ll likely need external finance, or risk liquidity problems.
4. Benchmark and adjust: Compare your SGR to industry peers and review annually. Look for ways to improve ROE (e.g., increase margins, reduce costs) or retain more earnings.

Pro tip: Many Australian accounting software platforms now include SGR and similar metrics in their dashboards. Use these tools to track your progress monthly, not just at year-end.

SGR in Action: Real-World Scenarios

Let’s look at two practical examples for 2025:

• Tech Startup: An Australian SaaS company with 18% ROE and a 20% dividend payout ratio has an SGR of 14.4%. If they’re aiming to double revenue in a year, they must either lower payouts or seek venture capital—otherwise, growth will outpace resources and cash flow will tighten.
• Family-Owned Construction Firm: With margins squeezed by rising material costs, the business has an SGR of just 4%. By focusing on higher-value contracts and retaining more earnings, they lift their SGR to 7%, which matches their new, more sustainable growth target.

Both scenarios demonstrate how SGR helps align business strategy with financial reality—reducing the risk of “growing broke”.

Conclusion: Make SGR Your North Star in 2025

As economic conditions remain dynamic, Australian businesses that understand and manage their Sustainable Growth Rate will be best placed to thrive—not just survive. Whether you’re leading a fast-growing startup or a mature SME, SGR is the compass that keeps growth ambitions grounded in financial health.