QualityRev R2#67
Sustainable Growth Rate measures how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
R-squared of revenue regression over 5 years
Description
Measures how predictable and steady revenue has been over the past five years using the R-squared of a linear regression. High R-squared means revenue follows a consistent trend with little deviation. This helps identify businesses with predictable, recurring revenue streams.
Interpretation
Above 0.9 indicates very stable, predictable revenue. Above 0.8 is good. Below 0.5 suggests highly cyclical or volatile revenue, which makes the business harder to value. Subscription and utility businesses tend to score highest.
Related metrics: Return on Equity (ROE), Return on Assets (ROA), Return on Invested Capital (ROIC). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Sustainable Growth Rate- Primary source filings used to calculate Sustainable Growth Rate.
FAQ
How is Sustainable Growth Rate calculated?+
Sustainable Growth Rate uses the formula: R-squared of revenue regression over 5 years. compare against sector median on /screener with the Sector filter applied. ValueMarkers refreshes the calculation within 24 hours of each new SEC filing using SEC EDGAR 10-K + 10-Q filings (segment-level disclosures).
What is a good Sustainable Growth Rate value by sector?+
There is no single 'good' value for Sustainable Growth Rate — context is sector-driven. compare against sector median on /screener with the Sector filter applied. The /screener exposes sector-relative percentiles for Sustainable Growth Rate on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Sustainable Growth Rate?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Sustainable Growth Rate as a key input to to find compounders with durable economic moats. The academic anchor is Greenblatt (2005) Magic Formula and Mauboussin (2014). ValueMarkers weights this within the Quality pillar of the VMCI score (30% of total).
What are the limitations of Sustainable Growth Rate?+
Sustainable Growth Rate can mislead in asset-light businesses where conventional capital ratios mislead. Pair Sustainable Growth Rate with at least two cross-checks from other VMCI pillars — for example, free cash flow trend, balance-sheet quality, and earnings consistency — before drawing a single-metric conclusion.
Where can I see live Sustainable Growth Rate data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Sustainable Growth Rate data, sector percentiles, and the VMCI composite score that integrates Sustainable Growth Rate with 119 other indicators across 100,000+ stocks. The free /screener exposes Sustainable Growth Rate as a filterable column.
Used in these guides
Related Quality Indicators
Return on Equity (ROE)Op Margin
Return on Equity measures how efficiently a company converts capital into earnings.
Return on Assets (ROA)Net Margin
Return on Assets is the metric used to how efficiently a company converts capital into earnings.
Return on Invested Capital (ROIC)EBITDA Margin
Return on Invested Capital measures how efficiently a company converts capital into earnings.
Return on Capital Employed (ROCE)FCF Margin
Return on Capital Employed is the metric used to how efficiently a company converts capital into earnings.
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