Investigating growth within a company

Dreyer, Johann (2008-12)

Thesis (MBA (Business Management))--Stellenbosch University, 2008.

Thesis

ENGLISH ABSTRACT: The sustainable growth rate of a company is investigated, by comparing the self-financeable growth rate as defined by Churchill and Mullins (2001), with the cash flow sustainable growth rate as defined by Hamman (1996). The purpose of this research is to identify the behaviour, characteristics and benefits that each rate displays by investigating changes in sales growth, profit margins, working capital and cash flow analysis. The biggest difference between the self-financeable growth rate (Churchill & Mullins, 2001) and the cash flow sustainable growth rate (Hamman, 1996) is the definition of cash as generated from sales (self-financeable growth rate) and cash generated from operating activities (cash flow sustainable growth rate). Cash generated from sales includes accounts receivable or payable, and represents the amount of cash that is available to reinvest in the growth of a company (according to the self-financeable growth rate). Because this cash (calculated for the self-financeable growth rate) is not immediately realised, the cash flow sustainable growth rate (based on cash flow from operating activities) represents a better measurement of cash available for reinvestment. If the percentage sales growth is less than the cash flow sustainable growth rate (Hamman, 1996), a positive sustainable cash flow from operating activities will be generated. The report also shows this to be true, when the self-financeable growth rate is less than or equal to the cash flow sustainable growth rate. When the growth in sales exceeds the cash flow sustainable growth rate, negative cash flow from operating activities is experienced. This is an indication that internal funding to support the working capital requirements is insufficient and external funding is required. In this investigation the self-financeable growth rate (Churchill & Mullins, 2001), always reflects a positive cash flow from operating activities, regardless of whether the percentage sales growth is higher or lower than that of the self-financeable growth rate. This leads to the question: What check is used to ascertain a company's sustainable performance when using the self-financeable growth rate? That is, if the self-financeable growth rate is exceeded by the sales growth, what indicator becomes relevant under the specific circumstances? As highlighted by Churchill and Mullins (2001), the benefits of sustainable growth rates, provide insight into the short and long-term decisions in a company with regards to: • Reducing overall costs • Changing the profit margins • Managing the working capital requirements • Changing the operating cash cycle. What matters most is not how fast a company can grow its business, but the way in which it is managed. Increasing competitiveness requires innovative ways of optimising resources, but without efficient management of cash flow, a company is most likely to fail. This report, illustrates that, compared to the self-financeable growth rate, the cash flow sustainable growth rate is a more effective tool, in addressing sustainable growth and the management of cash.

AFRIKAANSE OPSOMMING: 'n Maatskappy se volhoubare groeikoers word ondersoek deur 'n vergelyking te tref tussen die self-gefinansierde groeikoers van Churchill en Mullins (2001), en die kontantvloei volhoubare groeikoers van Hamman (1996). Die doel van die navorsing, is om die verandering in verkope, winsgrense, bedryfskapitaal en die kontantvloei ontleding te ondersoek, ten einde die aard, kenmerke en voordele van die groeikoerse te bepaal. Die grootste verskil tussen die self-gefinansierde groeikoers van Churchill en Mullins (2001), en die kontantvloei volhoubare groeikoers van Hamman (1996) is die definisie van die kontant gegenereer uit verkope (self-gefinansierde groeikoers) en die kontant gegenereer uit bedryfsaktiwiteite (kontantvloei volhoubare groeikoers). Kontant gegenereer uit verkope sluit in rekeninge ontvangbaar of betaalbaar en verteenwoordig die bekikbaarheid van kontant wat herbele kan word in 'n maatskappy se groei (volgens die self-gefinansierde groeikoers). Omdat die kontant (self-gefinansierde groeikoers) nie ommiddelik gerealiseer kan word nie, is die kontantvloei volhoubare groeikoers (kontant gegenereer uit bedryfsaktiwiteite) 'n beter verteenwoordiger van beskikbare kontant wat herbele kan word. As die presentasie groei in verkope minder is as die kontantvloei volhoubare groeikoers (Hamman, 1996) sal 'n positiewe volhoubare kontantvloei vir bedryfsaktiwiteite gegenereer word. Die verslag dui aan dat bogenoemde ook geld, as die self-gefinansierde groeikoers kleiner of gelyk is aan die kontantvloei volhoubare groeikoers. Wanneer die groei in verkope groter word as die kontantvloei volhoubare groeikoers, word negatiewe kontantvloei vir bedryfsaktiwiteite gegenereer. Hierdie is 'n aanduiding dat die interne befondsing wat benodig word om die bedryfskapitaal te bevredig, nie voldoende is nie en eksterne befondsing benodig word. In hierdie ondersoek reflekteer die self-gefinansierde groeikoers (Churchill & Mullins, 2001) altyd 'n positiewe kontantvloei vir bedryfsaktiwiteite, ongeag of die groei in verkope groter of kleiner is as die van die self-gefinansierde groeikoers. Dit lei tot die volgende vraag: Watter maatslaf word gebruik om die volhoubare groei van 'n maatskappy te bepaal as die self-gefinansierde groeikoers toegepas word? Anders gestel, as die groei in verkope, die self-gefinansierde groeikoers oorskry, watter toepaslike aanduiding is relevant onder hierdie omstandighede? Soos beklemloon deur Churchill en Mullins (2001), gee die voordele van volhoubare groeikoerse, insig in kort en langtermyn besluite in 'n maatskappy met betrekking tot: • Vermindering van totale koste • Verandering in winsgrense • Bestuur van bedryfskapitaal behoeftes • Verandering in die bedryfs kontant siklus. Wat van belang is, is nie hoe vinnig 'n maatskappy kan groei nie, maar wat die beste manier is, om dit te bestuur. 'n Verhoging in kompetisie, benodig innoverende maniere om bronne te kan optimiseer en sonder effektiewe betuur van kontant, bestaan die moontlikheid dat 'n maatskappy hierin kan misluk. Hierdie verslag illuslreer, deur te vergelyk met die van die self-gefinansierde groeikoers, dat die kontantvloei volhoubare groeikoers 'n beter, effektiewe maatstaf is, wat betref die adressering van volhoubare groei en die bestuur van kontant.

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