Deciphering Sustainable Growth: The Influence of Corporate Financial Metrics on SGR and Stock Returns

In a diligent quest for outperformance in the market, the paper will delve into the complex dynamics of the Sustainable Growth Rate (SGR) and stock prices. According to Higgins’ theory, the SGR is the maximum growth attainable by a company that does not require external funds. It employs Fixed Effects Models and analyses data from 73 major companies in the S&P 500 from 2021 to 2023. The study particularly examines how the factors, including tax and interest burdens, EBIT margin, asset turnover, financial leverage, and retention rate, help shape the SGR after COVID. Most importantly, this study underscores that return on equity (ROE) dominates the effect on SGR, thus stating that profitability and effective equity management are the keys to organizational sustainable growth. Therefore, the influence of the retention rate appears to be less impactful. The findings also challenge the traditional notion whereby long-term growth ensures long-term stock returns, hence more valuable for recommendations in light of this horizon for financial managers and investors, in refining their strategic and investment decisions.