Explain the difference between a firm’s sustainable growth rate and its optimal growth rate. In what circumstances is a firm’s optimal growth rate likely to exceed its sustainable rate, and under what conditions would you expect the opposite to be true?
Answer to relevant QuestionsCurrent asset accounts, especially cash and inventory, usually increase at a rate slightly less than the growth rate in sales. Why? If true, what is the implication of this fact for the sustainable growth model? In what ways can the sustainable growth model highlight conflicts between a firm’s competing objectives? What is a collection policy? What is the typical sequence of actions taken by a firm when attempting to collect an overdue account? Why do a firms regular credit terms typically con-form to its industry’s standards? On what basis other than credit terms should the firm compete? Why are providing liquidity and preserving principal the primary concerns in choosing short-term in-vestments? What guidelines should be included in a short- term investment policy?
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