Internal growth rate (IGR) is a measure of the ability of a business to generate income, grow and create value without having to rely on outside financing. This is a key indicator of the success of a business, as all business owners and stakeholders want to see a positive and innovative internal organic growth strategy.

The internal growth rate is calculated by taking the difference between the net income and the amount of equity available—dividing it by the total equity available. Put simply, it is the rate at which the company is able to accumulate new assets, or reinvest to generate additional income, from its existing resources. This method does not include the taking on of debt.

For example, if a company earns $50,000 net income for the year and has a total of $200,000 equity available, it would have an internal growth rate of 25 percent ($50,000/$200,000 = 0.25, or 25%).

The internal growth rate offers an insight into the quality and reliability of the company’s financial position and offers potential investors the ability to evaluate the company's overall financial health. It is a key performance indicator used by investors, business owners and financial analysts to determine the strength of a company and its ability to generate profit and revenue.

In addition, the internal growth rate can indicate the sustainability of a business. For a business to be viable and maintain its longevity, it must have a positive internal growth rate. It can also indicate the strength and potential of a business, measuring the total reinvestment needed to grow and sustain the company over time.

The internal growth rate of a company is one of the most important metrics used to determine its long-term potential. It is an important financial tool for those looking to evaluate the potential of a business and the potential for healthy and profitable long-term growth. Effectively managing the internal growth rate can help businesses grow their operations and create value over the long-term.