Question

Growth for the sake of growth is not always in the best interest of the firm and shareholder value. What are some of the things the firm can do to increase its growth potential, and when might an action to increase growth be contrary to the interest of increasing the firm's value?

Answer 1

In order to increase the growth potential of a firm, the following need to be done:

1. The firm should be able to identify the talent among its employees and retain the ones who are useful to the firm

2. It should be able to identify key indicators so that the performance of the firm can be analysed based on the indicators.

3. It should have a good value proposition which is unique and differentiates the firm from others.

4. The firm should be able to identify its revenue sources and improve on its strengths.

There can be situations when the firm takes up an action to increase growth but it may turn out to be contrary to the interest of increasing firm's value. For example: a firm might decide to invest more in debt so that it has a higher leverage. High leverage is good for the firm but the increased investment in debt is a negative thing as the firm will have to pay back money for the debt that they have taken. So, it is an action that was taken to increase the growth but instead it affected the interest of the firm.