I’m seeing a lot of companies that had tremendous growth over the past 3 years and at the first sign of “unmet targets” they take drastic measures (I.e. letting go of workforce). While their investors might indeed lose their confidence, sell their shares and, therefore, decrease the overall firm value, companies have made and still have lot of money in the bank, why do they need to care about growth, share price and what investors think to such extreme extents? Wouldn’t it be ok to just go with “we did not grow a single point this year and we have made the exact same profits of last year, that’s really good!”
In: 24
It is rare that a company (other than a small one in a very fixed market) spends their money exclusively on current business. For a company to grow quickly, it is almost certainly investing current revenue into future growth products and markets.
If current growth is close to zero, then it is very likely that prior investments into growth have not succeeded as expected. The company very likely has to reassess their internal investment and future product plans. The investors/shareholders own the company so they may require the management to adjust their plans accordingly.
Think of it this way. If someone goes to school for some time and takes a test and fails, the simplistic statement is that “they failed the test”. The deeper answer is that they failed to spend the time properly to learn the material required to pass the test. You want to look for the root cause not treat the symptom.
Similarly, failure to grow could be a sign of failure to plan and invest properly in the past – the lack of growth is a symptom.
Latest Answers