The Formula For Equity In A Combined Margin Account Is: Business Growth – 10 Tips On How To Grow Sustainably

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Business Growth – 10 Tips On How To Grow Sustainably

Sustainable business growth is essential for a company’s financial well-being. The lack of it can seriously damage the company or even lead to bankruptcy. The following tips can be used as a guide to grow your business sustainably.

  1. Understand the financial health of your business (e.g. financial statements, ratios and sustainable growth rate).
  2. Build a model for sustainable business growth and keep it current. A basic formula for calculating the sustainable growth rate (developed by Hewlett-Packard) that is very useful is as follows:
    • SGR = ROE*r
    • where:
    • SGR = sustainable growth rate
    • r = retention rate (1 – dividend payout ratio)
    • ROE = net profit margin * asset turnover * equity multiplier
  3. According to the growth that can be achieved on the basis of the budget sustainable growth formula. Keep it within budget.
  4. Avoid selling just for the sake of selling. It is important to keep gross profit margins as close as possible to budgeted figures. Lower profit margins reduce the achievable growth rate.
  5. Avoid impulsive business decisions and focus on core business. Taking money out of a good business and investing it in another ill-conceived venture is often suicide for the core business.
  6. Improve staff business acumen and improve internal systems to keep up with higher sales.
  7. Improve sustainable growth rate through higher profitability and better utilization of assets.
  8. Analyze products, suppliers, customers, regions, etc. more or less according to the Pareto principle (80-20 rule). Get rid of the ones that aren’t really profitable or waste too much time and energy.
  9. Put as much money as possible back into the business (in the growth phase).
  10. Only borrow more money (above a predetermined optimal debt ratio) or sell stocks as a last resort. The first issue increases the company’s bankruptcy risk, and the second one dilutes the existing equity capital of the company.

Copyright © 2008 by the author Wim Venter. ALL RIGHTS RESERVED.

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