1. What is the Internal Growth Rate?

The Internal Growth Rate represents the maximum rate at which a company can grow using only its retained earnings to fund the growth, without requiring external financing.

2. How Does the Calculator Work?

The calculator uses the Internal Growth Rate formula:

Where:

• \( \text{IGR} \) — Internal Growth Rate (%)
• \( \text{RR} \) — Retention Ratio (0 to 1)
• \( \text{ROA} \) — Return on Assets (%)

Explanation: The formula calculates the maximum sustainable growth rate a company can achieve using only its internal resources.

3. Importance of Internal Growth Rate

Details: Understanding the internal growth rate helps companies plan their growth strategies, assess financial sustainability, and determine when external financing might be necessary.

4. Using the Calculator

Tips: Enter the retention ratio as a decimal between 0 and 1, and return on assets as a percentage. Both values must be valid and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What is a good internal growth rate?
A: A good IGR varies by industry, but generally higher rates indicate better ability to grow using internal resources.

Q2: How does retention ratio affect growth?
A: Higher retention ratios allow for more reinvestment and potentially higher growth, assuming profitable operations.

Q3: What's the difference between internal and sustainable growth rate?
A: Internal growth rate assumes no external financing, while sustainable growth rate allows for debt financing but maintains constant debt-equity ratio.

Q4: Can a company grow faster than its internal growth rate?
A: Yes, but it would require external financing through debt or equity issuance.

Q5: What are the limitations of this calculation?
A: The calculation assumes constant financial ratios and doesn't account for changes in operating efficiency or market conditions.