Question

the company maintains a 40% dividend payout ratio. The net income is $12,493. The total on the balance sheet is $106,900. What is the internal growth rate?

Answer 1

Internal growth rate is calculated by dividing retained earnings by total assets.

Retained earnings is calculated by subtracting dividends from net income

So: Retained earnings would be 12,493 - (12,493 X .4)

Then to find internal growth rate take your retained earning from above and divide by total assets (the total on the balance sheet : 106,900).