Simulate corporate earnings retention (b), dividend payout tradeoffs, DuPont ROE efficiency, and Higgins Sustainable Growth Rate (SGR) across 5-year capital compounding horizons.
| Year Horizon | Projected Sales ($M) | Net Income ($M) | Dividends Paid ($M) | Retained Earnings ($M) | Cumulative Equity ($M) | Organic SGR Ceiling |
|---|
Analyze how shifts in operational return on equity and dividend retention accelerate or constrain corporate growth capacity.
Evaluate annual self-financing surpluses and external capital deficit risks across growth targets.
Robert C. Higgins developed the Sustainable Growth Rate model to quantify the maximum expansion rate an enterprise can achieve without issuing dilutive external equity or stretching its leverage ratio.
A company can organically elevate its sustainable growth ceiling by improving net profit margins, turning assets faster, or selectively increasing earnings retention (b).
The Plowback Ratio (also known as the Retention Rate or b) is the proportion of net earnings retained in the business rather than distributed to equity shareholders as cash dividends: Plowback Ratio (b) = 1 - (Cash Dividends / Net Income), or (Additions to Retained Earnings / Net Income). It indicates how aggressively management reinvests corporate profits into internal operations, working capital, and capital expenditures.
The Plowback Ratio is the primary internal engine of Higgins Sustainable Growth Rate: SGR = (ROE * b) / (1 - (ROE * b)). By plowing back a higher percentage of net earnings (b), the company expands its equity base organically. This equity expansion allows the company to borrow more debt while keeping its debt-to-equity leverage constant, driving top-line revenue growth without issuing dilutive new equity shares.
Internal Growth Rate (IGR) is the maximum rate a company can grow using solely internal retained earnings without taking on ANY debt or new equity: IGR = (ROA * b) / (1 - (ROA * b)). Sustainable Growth Rate (SGR) assumes the firm maintains a constant target debt-to-equity ratio by issuing proportionate debt alongside retained earnings, allowing a higher sustainable growth trajectory.
Early-stage and high-growth technology firms typically maintain a 100% plowback ratio (0% dividend payout), reinvesting all operational cash flow into R&D, customer acquisition, and infrastructure. Mature, stable cash-cow businesses (like utilities or consumer goods) often maintain plowback ratios between 20% and 50%, returning 50% to 80% of net profits to shareholders through dividends and share repurchases.