The Applications Of Sustainable Growth Rate Theory In Finance

Growth and its management is a special topic in financial management. For a specific company, growing over or under a reasonable rate is dangerous. Sustainable Growth Rate is a new theory concerning this topic, which considers that there is an appropriate growth rate for a company, and tries to resolve the growth management. Growth management is a new practical challenge for Chinese companies, especially for those grow over without proper growing-management so that leads to downfall or even bankruptcy. This paper starts with classical sustainable growth rate theories of Robert Higgins and James Van Horns, compares the real growth rate with the sustainable growth rate of B company, and presents some measures on managing growth, and discusses a few applications and tips of sustainable growth rate theory in financial management of a specific company. In principle part of this paper, it first introduces two classical theories of sustainable growth rate, presents the relativity of them, and calculates the real growth rate and the sustainable growth rate of B company and compares them. Then it discusses the differences and relations between the real growth rate and sustainable growth rate, and presents specific measures on growth management. At last, it creatively explores a few applications and tips when put sustainable growth rate theory into daily financial management, while based on classical sustainable growth rate formula on sales, it attempts to model sustainable growth rate on equity.