Suppose a company’s ROE is 16%. This company’s payout ratio is 40%. The required rate of return on the stock is 15%. What is the sustainable growth rate of this company? Solution Retention ratio=1-payout ratio =1-0.4 =0.6 Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)] =(0.16*0.6)/[1-(0.16*0.6)] which is equal to =10.62%(Approx)..