Do you think that the management should focus more on short term high growth targets? Or should they focus on long-term sustainable growth?

Posted Date : 31-May-2011 , 02:38:54 am | Posted By CASANSAAR print

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The result season is almost drawing to a close. Most companies have reported a decent growth in their top-line or their revenues. Some have even managed to translate this growth into a healthy growth in their profits as well. However, some have succumbed to the pressures of higher input prices and higher interest costs. But most managements have guided for higher than average growth rates in their top lines for the coming quarters. It is this obsession with constant growth that becomes questionable.

Growth is undoubtedly an important factor for a company. However, this growth is dependent on a number of things. It depends on how fast the underlying markets can grow. It also depends on how quickly the company is able to grab the market share that it needs to meet its goals. In addition to this, growth is also a function of the ability of new products to replace the decline in revenues from the current offerings.

Clearly, not all of these variables are in complete control of the management. Which is why a large number of companies that commit ambitious top line growth guidance, are unable to meet the targets. Very often the management overestimates its organic growth. At times they do not take into account the fact that their competitors are catch up faster using the same growth strategies.

Therefore, it is true that some companies, at times, do exceed average industry/economic growth rates. However, doing this year after year becomes increasingly difficult for any company. And eventually just to meet these high growth targets, the company ends up taking bad business decisions. Silly or expensive acquisitions or diversification into unrelated businesses can do more harm to a business than one can imagine. So while a focus on growth is essential for any company, an over obsession with the same can lead to serious problems. These can eventually destroy the company's value and the shareholders' wealtH

Category : Income Tax | Comments : 2 | Hits : 457

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