What ratio is calculated as return on equity multiplied by the retention ratio?

The ratio calculated as return on equity multiplied by the retention ratio is the sustainable growth rate.

The common shortcut is written as SGR = ROE × b, where b is the proportion of earnings retained rather than paid as dividends. ROE measures how efficiently shareholder equity generates profit; the retention ratio measures how much of that profit is reinvested in the business.

The concept is closely associated with financial scholar Robert C. Higgins. It estimates how quickly a company can grow while maintaining its target profitability, dividend policy, and capital structure. For example, a 15% ROE and a 40% retention ratio imply a 6% sustainable growth rate under the simplified formula.

A frequent mix-up is internal growth rate. Internal growth generally assumes expansion without new equity or additional external debt and is based on return on assets, while sustainable growth commonly permits debt to remain in a stable proportion to equity. The formula is an estimate, not a guarantee: changing margins, leverage, payout policy, or asset intensity changes the result.