Internal Growth Rate Formula

Internal growth rate tells the growth rate of the company just by using the internal financing of the company. You can use this internal growth rate formula to assess the total growth rate that a firm can achieve without using any external financial source. To calculate the internal growth rate, first step is to multiply the return on asset with retention ratio. Then subtract one from the product of asset and retention ratio. Divide the first and second step and multiply the resultant value with 100.


Internal Growth Rate = ((ROA × r) / (1 - (ROA × r))) × 100


ROA = Return on Asset
r = Retention Ratio

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An internal growth rate is a growth generated by cash flow. It's the growth that a company can earn by reinvesting its earnings. The internal growth rate formula is used to measure a firm's ability to increase sales and profit without issuing more stock or debt.

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