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The growth rate is the maximum possible rate with only with internal financing. The growth rate of a firm can be calculated with the following equation:
internal
Growth rate = (ROA x b) / (1 - ROA x b)
Here,
ROA = net income / total assets
B (retention rate) = retained earnings / net earnings.
Example: The following information is related to firm ABC
Net income $180
total assets $1,350
retained income $100
Step # 1:
Find the ROA and b (retention rate).
ROA = net income / total assets
ROA = $180 / $1,350
ROA = 0.13 OR 13%
b (retention rate) = retained earnings / net income.
b = $100/$180
b = .55 OR 55%
Step # 2:
By putting the information in growth formula
Growth rate = (ROA x b) / (1 - ROA x b)
Growth rate = (0.13 x 0.55)/(1 - 0.13 x0.55)
Step #3:
Solution:
Growth rate = (0.13 x 0.55)/(1 - 0.13 x 0.55)
= 0.0715 / (1 - 0.0715)
= 0.0715 / 0.9285
Growth rate = 0.077005924
So, growth rate of firm ABC is 7.7%.
What else can I help you with?
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How do you calculate the growth rate?
You can't everyone has different grow rates if you wanted to calculate your own growth rate get your height measurements from your parents from the 5 years add up the tally and divide the total by 5 that should give you your average growth rate hope i helped
How do you calculate growth rate?
You can't everyone has different grow rates if you wanted to calculate your own growth rate get your height measurements from your parents from the 5 years add up the tally and divide the total by 5 that should give you your average growth rate hope i helped
What is the difference between sales growth and sales growth rate?
Rate requires that you calculate the growth over time. I grew 10% (Yippee!) ...after operating 50 years (D'oh!).
