Drivers of Growth

Drivers of Growth

FEBRUARY 3, 2021

Grow, grow, grow; most companies strive for growth. Depending on the risk and initial price, “good growth” should be associated with value creation and returns. Not all growth is “good.” Earnings per share growth can be gamed and top-line sales growth does not mean value creation. Economic value arises if the profit generated from capital employed is greater than the required return of those investments. Good sales growth produces sufficient profit to more than cover the required returns on investments to grow sales. Capital is scarce, so the higher the profit, and the lower the capital needed to produce sales, the better. Overall, a corporation’s value is the sum of the capital invested in the business plus the present value of EVA.

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