Internal growth model (See Chapter 37 of the Vernimmen)

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.