# Internal Growth Rate Calculator

Instructions: Use this Internal Growth Rate Calculator to compute showing all the steps a internal growth rate, by providing the retention (plow-back) ratio ($$b$$) and the return on assets $$(ROA)$$:

Retention Plowback Ratio $$(b)$$ =
Return on Assets $$(ROA)$$ =

## Internal Growth Rate Calculator

More about this Internal growth rate calculator so you can better understand how to use this solver.

The Internal growth rate of a firm depends on the retention (plowback) ratio $$(RR)$$ and the return on assets $$(ROA)$$ using the following growth rate formula:

$g = \displaystyle \frac{ROA \times b}{1 - ROA \times b}$

The plowback ratio is a very interesting measure that indicates how much a company is retaining for different internal uses, after dividends have been paid out.

### Other related Finance Calculators

Closely related to the idea of internal growth rate is the concept of sustainable growth rate , as well as the general growth rate.

### Example of the calculation of the internal growth rate

Question: Assume that the plowback ratio is 40%, and the return on assets it 20%, calculate the internal growth rate based on this information.

Solution:

This is the information we have been provided with:

• The retention ratio is $$b = 0.4$$ and the return on assets is $$ROA = 0.2$$.

Hence, the internal growth rate $$g$$ is computed using the following formula:

$\begin{array}{ccl} g & = & \displaystyle \frac{ROA \times b}{1 - ROA \times b} \\\\ \\\\ & = & \displaystyle \frac{0.2 \times 0.4}{1 - 0.2 \times 0.4} \\\\ \\\\ & = & 0.087 \end{array}$

Therefore, the sustainable firm's growth is $$g = 0.087 = 8.7\%$$, for the given retention ratio of $$b = 0.4$$ and a return on assets of $$ROA = 0.2$$.