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

  1. Cash Flow

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  2. Internal Rate Of Return - IRR

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  3. Working Capital

    Working capital is a measure of both a company's efficiency and ...
  4. Net Cash

    A company's total cash minus total liabilities when discussing ...
  5. Asset

    1. A resource with economic value that an individual, corporation ...
  6. Retained Earnings

    Retained earnings is the percentage of net earnings not paid ...
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  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  6. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>

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