Last modified: 2020-02-26
Abstract
The economic growth may be reviewed both at macro level – the economy of the country as a whole, and at micro level – different regions, industries or enterprises.
The economic growth of the country’s economy as a whole refers to the increase of the total volume and value of goods and services produced by it during the relevant period in comparison to the previous period. If the value of produced, respectively, sold products, goods and services for the current year is higher than their value for the previous year, the economy has achieved economic growth. However, if the volume and value of produced, respectively, sold products, goods and services, have decreased during the current year, there is a negative economic growth – recession.
The economic growth of an enterprise may be analyzed and assessed by means of varied indicators that characterize both the composition and structure of staff, sources of funding of the operations and their structure, growth of the assets, respectively, revenue, net sale revenue, book profit and gains from sales, as well as the financial stability and financial equilibrium of the enterprise.
The economic growth of enterprises operating on the territory of the respective regions across the country is the main factor for economic growth and sustainable development of the regions themselves, and thus of the economy as a whole. This fact determines the importance and the topical nature of the economic growth of the enterprise and the methodology for its analysis.
Enterprise’s growth rate can be differentiated as internal growth rate and sustainable growth rate.
The internal growth rate shows the maximum growth rate that the enterprise can achieve at the expense of equity increase in the form of retained earnings. This means that in this particular case, the enterprise operates without any borrowings.
The sustainable growth rate shows the maximum growth rate of the enterprise that it can achieve under the conditions of relatively permanent borrowing to equity ratio, i.e. debt ratio. In this particular case, the enterprise maintains relatively permanent financial policy with regard to the capital structure.
This publication is aimed at determining a theoretically correct and practically feasible methodology for analysis and assessment of the enterprise’s growth rate, which is useful for the business.
The publication highlights the enterprise’s growth rate – internal growth rate and sustainable growth rate.
It studies the methodologies for analysis of the enterprise’s internal growth rate and sustainable growth rate.