Growth Equation (Essay Sample)

Growth Equation
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Growth Equation
The growth equation is very critical in running a company. It helps a company in tracking its growth rate and maintaining its financial policy. Different components affect the sustainable growth equation and are mostly influenced by the management. Such components include Return on Equity (ROE), Return on Asset (ROA), Net profit Margin (NPM), and Assets Turnover (AT).
Return on Equity is a component that affects sustainable growth in a company. It shows how a company can create funds and the rate of return on the ownership interest of a stockholder (Subbareddy et al., 2017). It helps an organization to utilize the resources it has and make more profits on the little they earn from their shareholder’s equity. Management causes a decline in equity when it repurchases the stock due to undervaluing the market and also the need to reduce the surplus cash. This results in a decline in the rate of return to shareholders. Growth in ROE shows that there is good management in the organization.
Net profit margin shows how effectively a company can generate more profits from the limited funds that they have. This is obtained from the financial statements that show the expenses and revenues incurred in the company. The management plays an important role to ensure the company increases the profit margin. This is by avoiding miscellaneous expenses to ensure the company runs on profit, avoiding stock-outs on demanded products and ensuring the prices are favorable to increase customer footfall.
The sustainable growth e