Question

Cambria, Inc., had equity of $196427 at the beginning of the year. At the end of the year, the company had total assets of $356640. During the year the company sold no new equity. Net income for the year was $37934 and dividends were $9803. What is the internal growth rate for the company? (in %) (round 4 decimal places)

Answer 1

Internal Growth rate	=	8.5632%
Workings:
Internal Growth rate	=	[(ROA X B) / 1 - (ROA - B)]
Where,
ROA	=	Return on Equity
B	=	Retention ratio
ROA	=	Net Income / Total Assets
	=	$37934 / $356640
	=	10.64%
B	=	1 - Dividend pay out ratio
		or
		1 - (Dividend paid / Net Income)
	=	1 - ($9803 / $37934)
	=	74.16%
Internal Growth rate	=	[(ROA X B) / 1 - (ROA - B)]
	=	[(10.64% X 74.16%) / 1 - (10.64% X 74.16%)]
	=	8.5632%