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IGR Formula:
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The Internal Growth Rate (IGR) represents the maximum growth rate a company can achieve without external financing, using only its retained earnings. It's a key metric for assessing a company's sustainable growth potential.
The calculator uses the IGR formula:
Where:
Explanation: The formula calculates how much a company can grow using only its internal resources by multiplying return on assets by the retention ratio (1 - payout ratio).
Details: IGR helps companies determine their sustainable growth rate without relying on external debt or equity financing. It's crucial for financial planning, budgeting, and assessing long-term viability.
Tips: Enter ROA as a decimal (e.g., 0.15 for 15%) and payout ratio as a decimal between 0 and 1 (e.g., 0.4 for 40%). Both values must be valid non-negative numbers.
Q1: What is a good IGR value?
A: Higher IGR values indicate better internal growth potential. The ideal IGR varies by industry, but generally values above the industry average are considered good.
Q2: How does IGR differ from Sustainable Growth Rate (SGR)?
A: IGR assumes no external financing, while SGR allows for external debt financing but maintains a constant debt-to-equity ratio.
Q3: What if my company has a negative ROA?
A: Negative ROA will result in a negative IGR, indicating the company cannot grow internally and may need external financing or operational improvements.
Q4: Can IGR be greater than 1?
A: Yes, if ROA is high and payout ratio is low, IGR can exceed 1, indicating very strong internal growth potential.
Q5: How often should IGR be calculated?
A: IGR should be calculated regularly (quarterly or annually) to monitor the company's sustainable growth potential and inform strategic decisions.