If you’re looking to expand your business sustainably, understanding your Sustainable Growth Rate (SGR) is crucial. At ICFO, we use Higgins’ formula to help businesses calculate their SGR and, more importantly, discover how to improve it. This formula considers key financial factors like Net Profit Margin, Asset to Sales Ratio, Debt to Equity Ratio, and how much net profit the owners decide to take out—known as Return to Owners. Together with our unique what-if scenarios, these elements come together to help you fine-tune your business strategy for optimal growth. 

Understanding the Key Metrics Driving Your Growth 

Higgins’ formula is a comprehensive tool that measures the potential growth of your business without needing external financing. It focuses on essential financial ratios such as the Net Profit Margin and the Asset to Sales Ratio, both of which indicate how efficiently you’re using your assets and managing profitability. 

But one of the most impactful factors here is the Return to Owners, which refers to how much of your net profit you, as the owner, decide to take for yourself. Here’s the trick: reducing the Return to Owners percentage means more profit is reinvested into the business, directly boosting your SGR. ICFO’s platform lets you model these scenarios easily, showing you how reducing that profit share and making other adjustments can drive long-term growth. 

Making Smart Adjustments with What-If Scenarios 

One of the best features of ICFO’s Growth Potential Module is the ability to explore different financial strategies with what-if scenarios. Want to see what happens if you reduce the Debt to Equity ratio or tweak your Net Profit Margin? You can instantly visualize how those changes affect your SGR. And here’s where it gets even better—we provide industry benchmarking for each scenario, so you can compare your metrics to industry standards. This added layer of benchmarking lets you gauge whether your adjustments are realistic and feasible within your industry, giving you more confidence in your decisions. 

For example, reducing the amount you take as Return to Owners might sound like a smart move to improve your growth rate. However, ICFO’s benchmarking data can help you see how other businesses in your sector handle their profit reinvestment, so you can ensure you’re aligning with industry norms and not over-committing. 

Optimizing for Sustainable Growth 

The formula doesn’t stop at Net Profit and Return to Owners. To really dial in your growth strategy, you’ll want to look at the Asset Turnover Ratio and Debt to Equity Ratio as well. Increasing your total asset turnover by improving operational efficiency allows you to generate more revenue per asset, which is key to maintaining financial health while scaling up. iCFO’s what-if scenarios show how small tweaks to these metrics can have a big impact. 

Plus, our platform gives you real-time feedback on how your business compares with others through competitive benchmarking. This helps you see if your targets for asset efficiency, profitability, or debt management are reasonable based on industry averages, so you can make informed choices. 

Achieving Financial Sustainability for the Long Run 

At the end of the day, achieving sustainable growth requires balancing your financial metrics. ICFO’s tools simplify this process, giving you an easy way to adjust everything from Net Profit Margin to Debt to Equity ratios, and see the impact in real-time. By offering what-if scenarios alongside industry benchmarking, iCFO ensures that your strategies aren’t just numbers on paper—they’re rooted in actionable insights that align with the competitive landscape. 

In conclusion, using Higgins’ SGR formula, combined with iCFO’s benchmarking and what-if scenarios, allows you to explore the best ways to grow without taking unnecessary risks. By making small, strategic adjustments to key financial indicators like Return to Owners and Asset Turnover, you’ll be set for long-term, sustainable growth.