Question

In finance, the internal and sustainable rates of growth are important. Why?

Answer 1

The internal rate of return is the the maximum growth is the maximum rate of growth which is sourced from the internal finances ie without raising money from the external sources for example re investing the retained earnings.

Whereas the sustainable growth rates are the YOY growth rates that the company is experiencing with the annual sales which is in line the annual fiscal policy. This rate is the maximum growth percetage of a company without adding on to the debt or the issue of the shares.

This shows the company's growth prospect without any of the external stimulus ie can be seen as an indicator to judge the YOY prospects of the company.