Internal Growth Rate


DEFINITION of 'Internal Growth Rate'

The highest level of growth achievable for a business without obtaining outside financing. A firm's maximum internal growth rate is the level at which growth from general business operations can continue to fund and grow the company. For startup firms and small business the internal growth rate is an important ratio to follow, since it measures a firm's profitable increase in top-line revenues.

BREAKING DOWN 'Internal Growth Rate'

The internal growth rate for a public company can simply be derived by taking a company's retained earnings and dividing by total assets. Measuring internal growth rate using retained earnings may not be the best approach for private and small firms, as tax implications may limit the retained earnings kept on the balance sheet. Using a ratio of net cash flow to working capital would be more advisable, in such instances

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  1. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  2. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  3. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  4. Do dividends affect working capital?

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  5. Do prepayments provide working capital?

    Prepayments, or prepaid expenses, are typically included in the current assets on a company's balance sheet, as they represent ... Read Full Answer >>
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