Internal Growth Rate Calculator

It is the rate that signifies the maximum earnings of the company generated from the internal funding only, that is, earnings retained by the company after distributing dividends. The internal growth rate calculator assumes that no funds are raised through external sources. It is more used in small businesses or initial stages of a business where the company does not have external borrowings. This shows the company’s capacity to perform and increase its turnover and profits without using external sources of funds.

Internal Growth Rate is obtained by multiplying the retention ratio by returns on assets. The formula for calculating the internal growth rate is:

Internal Growth Rate = Retention Ratio * Return on Assets

Internal Growth Rate Calculator

How to Calculate using Calculator?

The user has to simply insert the following details into the internal growth rate calculator to get an instant result.

Retention Ratio – The retention ratio is the portion of earnings retained by the company after paying off dividends to the shareholders. The formula for calculating the retention ratio is:

Retention Ratio = 1 – Dividend Payout Ratio

Therefore, you can also use (1 – Dividend Payout Ratio) * ROA as a formula of internal growth rate directly instead of the formula mentioned above.

And the dividend payout ratio is the result of dividend per share divided by earnings per share. To know more about the dividend payout ratio, you can directly refer to our article – Dividend Payout Ratio. And you can also use our Dividend Payout Ratio Calculator for a quick calculation of the same.

Return on Assets – Return on assets is the ratio of net earnings of the company to its total assets. The formula is as follows:

ROA = Profit after Tax (PAT) / Total Assets

Click on the following article for more details on ROA – Return on Assets (ROA)

Excel Calculator – Internal Growth Rate

You can also download our excel based calculator for Internal Growth Rate.

Sanjay Borad

Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

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