What is sustainable growth, and why is it important to calculate and understand this rate? What is the sustainable growth equation, what are its components, and how is it calculated?

If a company grows too fast, it can find itself without access to the resources it needs to meet its obligations. If it grows too slowly, it may find itself missing strategic as well as tactical opportunities. Calculating and understanding a firm’s optimal or sustainable growth rate is critical to the goal of maximizing shareholders’ wealth and developing an optimal capital structure. You senior analyst has asked you to do some research in this area and to share what you have learned with the other junior analysts on staff through the company discussion board. She has asked you to research and address the following topics in your posts:

  • What is sustainable growth, and why is it important to calculate and understand this rate?
  • What is the sustainable growth equation, what are its components, and how is it calculated?
  • What are the consequences of growing a firm too fast or too slow?
  • If a company grows too fast, what funding alternatives are generally available?
  • If a company grows too slow, what steps should it take to maintain its stock price?
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