Internal Growth Rate

AAA

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.

INVESTOPEDIA EXPLAINS '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. Working Capital

    This ratio indicates whether a company has enough short term ...
  2. Net Cash

    A company's total cash minus total liabilities when discussing ...
  3. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Internal Rate Of Return - IRR

    The discount rate often used in capital budgeting that makes ...
  6. Retained Earnings

    The percentage of net earnings not paid out as dividends, but ...
Related Articles
  1. Investing Basics

    The Power Of Dividend Growth

    Dividends may not seem exciting, but they can certainly be lucrative. Learn more here!
  2. Investing

    Earnings: Quality Means Everything

    It's quantity that generates all the hype, but there are more meaningful factors that gauge true performance.
  3. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  4. Fundamental Analysis

    Evaluating Retained Earnings: What Gets Kept Counts

    A company's retained earnings matter. Be investment-savvy and learn how to analyze this often overlooked information.
  5. Forex Education

    Compound Annual Growth Rate: What You Should Know

    The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story.
  6. Economics

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  7. Entrepreneurship

    The Best (And Worst) Countries To Be An Entrepeneur

    Where you start a business can influence its success. This new World Bank study will help you find the most – and least – favorable economic climates.
  8. Delivery duty paid (DDP) is a shipping term.
    Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  9. Mergers are not the same as acquisitions.
    Investing

    What's a Merger?

    Mergers are not the same as acquisitions. In an acquisition, one company buys and subsumes another company, leaving only the buyer in place. In most mergers, both companies merge to form an entirely ...
  10. Fundamental Analysis

    What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center