Question

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

Answer 1

Importance of Internal and Sustainable Growth Rate-

Internal growth rate (IGR) refers to the highest level of growth which a business can achieve internally without obtaining outside financing. A firm's maximum internal growth rate is the level of business operations that can continue to fund and grow the company. It is an important measurement for startup companies and small businesses because it measures a firm's ability to increase sales and profit without issuing more stock or debt.

Sustainable growth rate (SGR) refers to the maximum rate of growth that a company or social enterprise can sustain without having to finance growth with additional equity or debt. The SGR involves maximizing sales and revenue growth without increasing financial leverage. Achieving the SGR can help a company prevent being over-leveraged and avoid financial distress.

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