Growth as a Financial Management Goal

Because the subject of growth will be discussed in various places in this chapter, we need to start out with an important warning: Growth, by itself, is not an appropriate goal for the financial manager. Clothing retailer J. Peterman Co., whose quirky catalogs were made famous on the TV show "Seinfeld," learned this lesson the hard way. Despite its strong brand name and years of explosive revenue growth, the company filed for bankruptcy in 1999, the victim of an overly ambitious, growth-oriented, expansion plan.

Amazon.com, the big online retailer, is another example. At one time, Amazon's motto seemed to be "growth at any cost." Unfortunately, what really grew rapidly for the company were losses. By 2001, Amazon had refocused its business, explicitly sacrificing growth in the hope of achieving profitability.

As we discussed in Chapter 1, the appropriate goal is increasing the market value of the owners' equity. Of course, if a firm is successful in doing this, then growth will usually result. Growth may thus be a desirable consequence of good decision making, but it is not an end unto itself. We discuss growth simply because growth rates are so commonly used in the planning process. As we will see, growth is a convenient means of summarizing various aspects of a firm's financial and investment policies. Also, if we think of growth as growth in the market value of the equity in the firm, then goals of growth and increasing the market value of the equity in the firm are not all that different.

You can find growth rates under the research links at

www.multexinvestor.com and finance.vahoo.com..,

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