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.

Internal 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 \(ROA = 0.2\).

log in to your account

Don't have a membership account?
REGISTER

reset password

Back to
log in

sign up

Back to
log in