1. What is Internal Growth Rate?

The Internal Growth Rate (IGR) is the maximum rate at which a company can grow its sales and assets without external financing. It represents growth achievable through retained earnings only.

2. How Does the Calculator Work?

The calculator uses the Internal Growth Rate formula:

Where:

• \( ROA \) — Return on Assets (decimal)
• \( Retention\ Ratio \) — Proportion of earnings retained (1 - Payout Ratio)

Explanation: The equation shows how much a company can grow using only its internal resources, based on profitability (ROA) and how much profit is reinvested.

3. Importance of IGR Calculation

Details: Understanding IGR helps businesses plan growth strategies, assess financial sustainability, and determine when external financing might be needed.

4. Using the Calculator

Tips: Enter ROA and Retention Ratio as decimals (e.g., 0.15 for 15%). Both values must be between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between IGR and SGR?
A: IGR assumes no external financing, while Sustainable Growth Rate (SGR) includes debt financing but maintains constant capital structure.

Q2: What are typical IGR values?
A: Varies by industry, but most mature companies have modest IGR (5-10%), while high-growth firms may have higher rates.

Q3: How to increase IGR?
A: Either improve profitability (ROA) or retain more earnings (increase retention ratio).

Q4: What if actual growth exceeds IGR?
A: The company will need external financing (debt or equity) to sustain growth beyond its IGR.

Q5: What are limitations of IGR?
A: Assumes constant efficiency (ROA) and doesn't account for changes in asset utilization or operating leverage.