What would happen if a companies profits just stayed the same over a period of quarters? I obviously don’t understand it at all but isn’t it just unsustainable to expect growth indefinitely?
In: Economics
They don’t. Some companies have seen sales and profits drop over time. Tobacco companies are a good example, and have seen inflation adjusted revenues and profits fall over time.
But if you’re a growing company, you get to do exciting things. You get to hire more people, which means you can promote more of your own people, pay workers better, expand business, open new factories, try out new products, do innovative research, etc.
You can do all these exciting things- which are expensive- because you expect to be growing and your sales and profits will be higher next year- so spending more this year is fine, even if you go into debt to do it.
Most companies want to be exciting companies with increasing profits. Also- people want to work for exciting companies. If your company is shrinking, then some of your best employees might decide to leave for another company. After all, yours is shrinking or staying flat, so they’d rather work for a new company with the opportunity for growth.
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