Internal Growth Rate

What is an 'Internal Growth Rate'

An internal growth rate is 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

RELATED TERMS
  1. Growth Firm

    A company that is growing at a rapid pace compared to its peers ...
  2. Growth Company

    Any firm whose business generates significant positive cash flows ...
  3. Growth Rates

    The amount of increase that a specific variable has gained within ...
  4. International Finance

    Definition of international finance
  5. Sustainable Growth Rate - SGR

    The maximum growth rate that a firm can sustain without having ...
  6. Retained Earnings

    Retained earnings is the percentage of net earnings not paid ...
Related Articles
  1. Economics

    How to Calculate Sustainable Growth Rate

    Sustainable growth rate is the rate at which a company can grow without having to borrow money to fund its growth.
  2. Economics

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.
  3. Investing Basics

    5 Characteristics of Good Growth Stocks

    Growth stocks can give investors good returns, but not all growth stocks are the same. From leadership to growth, there are traits good growth stocks share.
  4. Investing Basics

    Growth Investing

    Growth investing is a strategy where an investor seeks out companies demonstrating signs of high earnings that are well above the average rate compared to other firms in their industry and within ...
  5. Charts & Patterns

    Stock Analysis Basics: How To Forecast Revenue and Growth

    Forecasted revenue and growth projections are important components of security analysis, leading to a stock’s future worth.
  6. Economics

    Understanding Organic Growth

    Organic growth is the increase in a company’s revenue and value due to internal operations.
  7. Economics

    What is a Firm?

    A firm is a business or organization that sells goods or services on a for-profit basis.
  8. Professionals

    Equity Funds

    FINRA Series 6: Section 10 Equity Funds. This section deals with different types of equity funds: growth funds, income funds, aggressive growth funds and growth and income funds.
  9. Investing Basics

    Revenue Projections Show Profit Potential

    Examining how a company makes money can offer clues about its earnings potential.
  10. Investing Basics

    Growth Investing: 3 Tips to Consider

    Learn the basics of growth investing, and discover three tips for avoiding the risk of losing money while employing a growth investment strategy.
RELATED FAQS
  1. In the context of a startup, what is sustainable growth?

    Understand what sustainable growth means for a startup. Learn what a startup needs to do if its growth rate is above or below ... Read Answer >>
  2. How important is sustainable growth for the long-term future of a startup?

    Understand the importance of sustainable growth to the long-term future of a startup. Learn the benefits and drawbacks of ... Read Answer >>
  3. What's the difference between retained earnings and revenue?

    See why retained earnings and revenue are both considered important measurements of a company's financial performance, and ... Read Answer >>
  4. How does equity financing affect a company's financials compared with the effects ...

    Understand the formula used for calculating a company's sustainable growth rate and the factors that influence changes in ... Read Answer >>
  5. What is more important for a business, profitability or growth?

    Discover how both profitability and growth are important for a company, and learn how corporate profitability and growth ... Read Answer >>
  6. What are common growth rates that should be analyzed when considering the future ...

    Learn about some of the most commonly used measures for evaluating a company's future growth prospects and analyzing it as ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center