Analyzing Sustainable Growth Rate of the Firms in Kehati Sustainable and Responsible Investment Index in Indonesia
Dr. Siti Rahmi Utami; Rico Gunawan
Case Studies Journal, Volume 4, Issue 6 – June 2015 - 28 July 2017
Sustainable growth rate is the maximum growth rate that a firm can sustain without having to increase financial leverage. Higgins explained that the sustainable growth concept is very important because sustainable growth rate forced the management to consider whether the company's growth strategy was compatible with the ability of the company's growth. According to Van Horne, sustainable growth rate is particularly valuable because it combines companies’ operating (profit margin and asset efficiency) and financial (capital structure and retention rate) elements into one comprehensive measure. Using sustainable growth rate, managers and investor can begin to measure whether the firm’s future growth plans are realistic based on their current performance and policy. Drake defined sustainable growth as the growth the company is capable of if it does not alter its capital structure (remains relatively constant).