In: Finance
Every firm faces challenges related to growth- either too much or too little. Managers need to understand the impact of growth on the firm and recognize that "growth at all costs" should not be the main objective of a firm. In this week's module, discuss the balance between growing too quickly and growing too slowly as a firm and what decisions a manager can make to help impact this balance.
Every firm is facing the challenges relating to growth and growth is the primary concern for overall business but growth should not be the only concern for the business because growth can never be sustainable in nature as there are various kinds of systematic risk which are attached to the businesses which cannot be completely managed by the business so they should be trying to have a manageable expectation regarding growth and not have aggressive expectation because that can lead to unnecessary risk which will be impacting the sustainable development in order to achieve the long term vision.
Growth at all cost should never be the main objective for the firm because economic cycles can never be completely predicted in advance and the company should always be conservative in its approach and it should always be having a certain level of risk adjustment so it should not be having a highly aggressive approach towards risk management as it can lead to to complete failure of the management and even force the company to take unnecessary risk in order to achieve those higher growth rates.
debt capital is often taken by companies who want to grow fast and these companies will be trying to take advantage of interest tax deduction in order to maximize their overall growth rate but when there is not much income on the hands of the company due to changes in the economic cycle, the company will be facing the liquidity risk along with the solvency risk so the company should never be taking unnecessary risk in order to grow because it can have a threat on the overall solvency of the company in the long run.
there has to be an optimum Expectations regarding growth and it should always be balanced because various macro risky can never be predicted in advance and a sustainable growth rate can only be achieved through balanced approach in risk management by having a normal industrial growth rate rather than having some aggressive growth rate which can lead to unnecessary risk.