What do corporate treasurers need to know about growth?
by Bija Knowles
Companies need to grow to survive. Corporate treasurers aren't usually the ones called on to steer vital growth but it helps to know how firms achieve it and how they need to invest in areas of innovation.
An article by McKinsey's Yuval Atsmon highlights research that companies that survive tend to be the ones that grow. He writes that almost all companies that survived from 2001 to 2015 grew and he adds that “56 per cent of them at least doubled over 10 years”. But it's worth noting also that not all growth translates into higher revenues. Those companies that see both growth and increased profits tend to benefit from positive industry trends and chase those trends at the outset through significant resource re-allocation, executing significant M&A and achieving major cost transformation. Of course, the corporate treasurer or CFO needs to be involved in these processes.
One of the reasons why growth doesn't always translate into value is excessively fast growth or overly ambitious M&A activity. Atsmon continues: “Of about 430 companies that increased revenues by at least five times within a decade, 210 had negative economic profit during 2011-2015 in about half the cases despite having very positive economic profit (the profit surplus above the company’s cost of capital) 10 years earlier, when they were much smaller.”
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