Growth & Competition

When evaluating the stability of growth periods, a key question is who bears the burden of a particular organization’s growth? What strengths do creditors have and can they influence whether or not growth is sustained?

Research conducted on 500 global companies between 1997 and 2007 shows that the average annual growth rate was 5.9%. Only one-third of organizations contributed to a growth exceeding 10%, which poses challenges for acquisitions and other organizations’ purchasing considerations.*

A similar study conducted in the United States, analyzing the top 500 non-financial organizations from 1965 to 2007, demonstrated an average annual growth rate of 5.4%, with fluctuations between 1% and 9%.*

As it appears, assessing the stability of growth presents a much more challenging task than assessing the return on invested capital (ROIC). The extension of growth periods leads to a “sinister” increase in stock prices…

The graph presented in McKinsey & Co’s report and its stakeholders illustrate variations in growth tendencies over time. The graph is presented to explain that not all types of growth yield the same results (it is not accurate in every industry or at any time).

Therefore, if the parameters of high-growth metrics influence the price at the time of stock valuation, consider deliberating on possibilities for prolonged growth rate stability. Ask yourself, what influences an organization’s growth and how strong or vulnerable is the competition in the waters where the organization is currently thriving…

*Source:

Value: The Four Cornerstones of Corporate Finance
by McKinsey & Company Inc.,Tim Koller, Richard Dobbs, Bill Huyett