What does "b" represent in the internal growth rate equation?

In the internal growth rate equation, "b" represents the retention ratio, which is the proportion of net earnings that is retained in the business rather than distributed to shareholders as dividends. This concept is crucial because it highlights how much of the company's profits are being reinvested to fund growth activities such as expanding operations, developing new products, or increasing marketing efforts.

The retention ratio directly influences a company's ability to grow from its internal resources. The more a company retains, the more capital it can use for reinvestment, which can lead to increased revenues and profits over time. This is fundamental to understanding how companies can achieve growth without needing to rely on external financing. In summary, the retention ratio is key to assessing a firm’s capacity to grow internally and sustainably by using its retained earnings.