The Dimension of Business Growth
The Process of Growth
1. Financial Growth-relates to the development of the business as a commercial entity.
2. Strategic Growth-changes that take place in the way in which organization interacts with its environment.
3. Structural Growth-changes in the way the business organizes its internal systems.
4. Organizational Growth-changes in the organization’s processes, culture, and attitudes as it grows and develops.
The Balance Sheet-structure of financial reporting shows the assets and liabilities of the firm as being equal.
The Profit and Loss Account-provides a summary of the revenues ...view middle of the document...
2. Financial Status Ratio-used to gain an insight into the business position with regard to its liabilities.
a. Solvency Ratio-debt ratio represents the capital structure of the firm.
b. Liquidity Ratio-concerned with short-term liabilities.
* Current Ratio-ratio of current assets to current liabilities.
* Acid Test Ratio-straight measure of a firm’s ability to pay its short-term creditors immediately from its liquid assets.
3. Stock Market Ratio
a. Earnings per Share-profits potentially available for each share that has been issued.
b. Price/Earnings Ratio-ratio of the price at which a share in the business is trading on the stock market to the earnings per share.
c. Dividend Yield-represents the payment made to investors on each share as a proportion of the market value of the share.
d. Dividend cover-indicate the division of available profits by management between passing them to shareholders and retaining them within the business for future investment.
1. The Underlying performance (Return on Investment) of the Venture
* Investors will be interested in the performance of the venture not just in absolute terms but relative to their expectations of that performance.
2. The Growth in the value of the Venture
* Growth in income, assets and capital are equally important.
a. Changes in turnover
b. Changes in cash profits
c. Changes in tangible assets
d. Changes in total assets
e. Changes in shareholder’s capital
* Expansion of the venture drives an increase in the underlying value a shareholder’s investment.
3. The trend in the risk of the venture
* The specific level of risk faced by the business is, to a degree, under the control of the entrepreneur and other managers.
* Business grows, matures and stabilizes investors will expect risk to be reduced.
* Having faced risk initially they become ready to enjoy the return they are owed.
4. The dividends yielded by the venture
* Form of them receiving dividend payments on the shares they hold or by selling those shares.
1. Growth and Cost Advantages-the main source cost advantages are experience effects.
* Cost advantages have not already been established in the market
* Potential volume outputs make entry into the market worthwhile
* Sales of the product they are offering to the market are sensitive to price
* The experience curve will be steep enough (but not too steep!)
* Distribution can be maintained
* Technological innovation will not reset the experience curve
* The entrepreneur and financial backers have patience!
* Cost are actively managed
2. Growth and Knowledge advantages-arises from knowing something about the customer, the market or the product offered that competitors do not know, which enables the business to offer something of value to the customer.
* How significant is the knowledge...