To calculate the internal growth rate (IGR):
\[ \text{IGR} = \frac{\text{ROA} \times b}{1 - (\text{ROA} \times b)} \]
Where:
The internal growth rate is the maximum rate at which a company can expand its operations using only its internal resources, such as retained earnings. It is an important metric for businesses as it helps determine the company’s ability to grow without relying on external funding sources, such as debt or equity financing.
Let's assume the following values:
Using the formula:
\[ \text{IGR} = \frac{0.08 \times 0.6}{1 - (0.08 \times 0.6)} = \frac{0.048}{0.952} \approx 0.0504 \]
The Internal Growth Rate is approximately 0.0504 or 5.04%.
Let's assume the following values:
Using the formula:
\[ \text{IGR} = \frac{0.10 \times 0.7}{1 - (0.10 \times 0.7)} = \frac{0.07}{0.93} \approx 0.0753 \]
The Internal Growth Rate is approximately 0.0753 or 7.53%.
