Fin. Management 4 - Financial Management & Growth

Fin. Management 4 - Financial Management & Growth -...

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Hult International Business School - Shanghai Financial Management April/May 2015 Handout 4 – Managing Growth
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1-2 Introduction It is possible for companies to grow too quickly. It is possible for companies to grow too slowly. Growth needs to be managed.
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1-3 Sustainable Growth A company’s sustainable growth rate is the maximum rate it can grow without depleting financial resources. How to compute a company’s sustainable growth rate? How to respond when growth veers off the sustainable trajectory?
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1-4 Phases 1. Startup (usually with losses) 2. Rapid growth (with infusions of outside financing) 3. Maturity (generating cash) 4. Decline (marginally profitable, with cash to search for new products, investments)
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1-5 The Sustainable Growth Equation Consider a situation when a company has a target dividend payout policy, target capital structure, and does not wish to issue new shares or repurchase existing shares. Consider a firm whose sales are growing rapidly. Sales growth requires investment in AR, inventory, and productive capacity.
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1-6 FIGURE 4.1 New Sales Require New Assets, Which Must Be Financed
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