Definition for : Internal growth model

The internal growth model establishes a direct link between the business's growth rate and the growth rate of Capital employed: g= (ROCE + (ROCE-i) x D/E) x (1-d), where g is the growth rate of company's Capital employed given a constant Capital structure (defined by D (Debt) divided by Equity (E)) and constant ROCE (Return on Capital employed), with d being the Dividend Payout ratio. In the formula above the i represents the after-tax Cost of debt.

(See Chapter 37 Distribution in practice: dividends and share buy-backs of the Vernimmen)

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