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Finance Formulas / July 13, 2018 / Iliana Williamson

The true benefit of a high return on equity arises when retained earnings are reinvested into the company’s operations. Such reinvestment should, in turn, lead to a high rate of growth for the company. The internal growth rate is a formula for calculating maximum growth rate that a firm can achieve without resorting to external financing. It’s essentially the growth that a firm can supply by reinvesting its earnings. This can be described as (retained earnings)(total assets ), or conceptually as the total amount of internal capital available compared to the current size of the organization.

A current asset is cash and any other company asset that will be turning to cash within one year from the date shown in the heading of the company's balance sheet. If a company has an operating cycle that is longer than one year, an asset that will turn to cash within the length of its operating cycle is considered to be a current asset.

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