Abstract
M.Com. (Business Management)
The fact that growth is important for the survival of a business cannot be contradicted. It is however, necessary to plan the growth of a business and to keep it within the means of the business. To measure this growth in a meaningful manner, poses a problem.
Various definitions for the ideal growth rate, referred to as sustainable growth, do exist. In essence it is the ability of the company to grow without any negative effects on the resources of the company. In managerial and financial literature, models on the aspect of sustainable growth have been developed. In this study these models have been critically analysed and applied to eleven companies quoted on the J.S.E. A comparison of the results, derived from these models, were made and it was found that there were substantial differences in the proposed growth rates. None of these models mentioned, allowed for the effect of inflation. An additional model was developed to eliminate the effect of inflation on growth. The principle of this model was to calculate the growth necessary to maintain business activities at the same levels. All funds in excess of, the financing needed to maintain current activity levels, were available for expansion and growth. This new proposed model was also applied to the same companies for the years investigated. The results were compared and the calculated growth rates from the existing models were not indicative of the real situation, regarding the after inflation growth potential of the companies. It was obvious in the results of the new model, that much less funds were available for growth. Should a company exceeds this proposed level of growth, the company is actually depleting the existing resources and become more dependent on additional borrowed funds.
Investors and managers can use this model as a mechanism to predict, plan, manage and monitor the sustainable growth of a business.