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)
