CASH-FLOW SUSTAINABLE GROWTH RATE MODELS
CASH-FLOW SUSTAINABLE GROWTH RATE MODELS

Summary/Abstract: The internal funding of a company is limited by the ability to generate enough cash-flow from operational activities. External funds aimed at growth are associated with increased risks and with the need to have investment projects. Recent research has shown that the spread of the financial crisis is associated with excessive external funding aimed at stimulating the growth of businesses. The limitations of external funding are well-known: capital market funding determines unwanted costs and changes in the ownership structure, while bank funding determines costs that erode operational margins. In the light of the above, it can be said that, in most circumstances, growth should be financed using internally-generated funds. Using the sustainable growth rate, managers and investors can establish whether their plans for increasing revenues are realistic and whether they are based on actual operational and financial performance.

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