Syndicate
Growth Rate
The growth rate of a society and with it the quotation of its securities depend on two factors: profitability of their own funds (also called rate of profitability), and the amount of benefits reinvested into the rate of reinvestment.
Then, what does a reinvestment rate imply and what does it say about the growth trajectory of any company?
The administration council is the organ in charge to establish which production of benefits will stay in the company. For example, if a company had a benefit of 10; if it were in a genuine growth situation, the management could well decide to reinvest the 10; in this case, the reinvestment case would be of 100%. The fact to retain all or almost all (80-90%) of the benefits indicate that the management is convinced that they can gain more money from their shares by investing in their own company. The growth rate of the company that we are using as example would be calculated as follows:
Growth rate = profitability rate x reinvestment rate = 12.50% x 1.00 = 12.50%
Remember that the growth rate has to be calculated over a period of five years, due that that of an only year would not be representative.