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Abstract

The purpose of this paper is to improve clarity and financial analysis for calculating a firm's sustainable growth rate, a useful concept for firms growing very fast as well as those in financial distress.


The paper is based on a review of literature and textbooks concerning the concept of sustainable growth rate.


The sustainable growth rate is the rate at which a company can grow without creating a cash flow problem, a concept developed by Robert C. Higgins in 1977 and in 1981 extended by him for continuous time frameworks. For discrete time frameworks, his textbook describes sustainable growth rates as a product of four ratios: the profit margin, the retention ratio, the asset turnover and the financial leverage ratio, of which the latter divides closing total assets by opening equity.


I agree with the components but suggest a slight modification. The leverage ratio should use the figures of the same date: it should use opening total assets divided by opening equity. Mathematically, this change would require modifying the asset turnover ratio to make it sales divided by opening total assets, instead of dividing by closing total assets as used by Higgins. This modification makes more intuitive sense since sales are created by assets rather than the other way round, which is far more indirect and remote and because of the timing problem.


The paper provides a simple illustration.


This modification would also require précising that the sustainable growth rate of firms in financial distress should use the asset turnover ratio using opening assets.

Copyright © 2008 John Wiley & Sons, Ltd.

If the primary effect of economic volatility is on consumption—requiring consumers to smooth over the rough spots—recent studies have shown that the business cycle has relatively little effect on consumer welfare. However, the primary effect of volatility may not be on consumption but on investment and productivity. If investors shift their money from volatile cities and times to stable ones, or if productivity depends on predictable demand and a stable work-force, volatility may hinder urban growth. Analysis of annual growth rates in U.S. metropolitan areas shows that short-term volatility reduced growth substantially and that these effects were larger in cities with high long-term volatility. In most metropolitan areas, volatility reduction and growth enhancement efforts would provide roughly equal improvements in consumer utility.

PurposeThis paper analyses the determinants of key inputs for the explicit discounted cash flow (DCF) or the implicit capitalisation models, namely the discount rates and the capitalisation rates. We also study the factors affecting the implied growth rate of the net operating income (NOI).Design/methodology/approachWe make use of a rich database for the commercial real estate market in the US that covers a long time period (2002–2024) and over 60 metropolitan markets. Given that the figures are appraisal-based, we use a common desmoothing approach and analyse the determinants of discount rates, capitalisation rates and growth rates using regression analysis.FindingsOn average, the discount rate in gateway markets is 89 basis points lower than in non-gateway markets. A similar difference is observed for capitalisation rates (93 basis points). Inflation has an immediate negative impact on capitalisation and discount rates due to the delayed adjustment of the rental income, but the effect turns positive over time. With a lag, real GDP growth reduces both rates, as expectations of economic growth reduce risk premia. Real interest rates consistently increase capitalisation, discount and growth rates through higher borrowing costs and portfolio reallocations.Practical implicationsThe investment method to valuation is widely used in practice. By shedding additional light on the determinants of key inputs when using the explicit DCF of implicit capitalisation models, namely the discount and capitalisation rates, the results of this study should provide important information to appraisers and policymakers.Originality/valueThis paper provides a comprehensive analysis of the determinants of key inputs needed when appraising a commercial real estate property with an income approach. In particular, it not only explores the impacts of macroeconomic variables on discount and capitalisation rates but also those of various types of properties. As such, the results of this study should have important implications in practice.

ABSTRACTThis note investigates regional population growth in the U.S. for 1959‐84, taking into account four city sizes and three time periods. It is found that the growth is largest in city size (0.5 ‐ 1.0) million and (1.0 ‐ 2.0) million. Over time, the growth is largest in the less urbanized regions.

This paper examines the causal relationship between high inflation and economic growth in Turkey. While talking about economy, The growth in the economy sounds positive but as inflation word, the citizens most of the time do not have an idea how it can be and how would it influence on the people in the market. The inflation and economic growth are the basic keys of purchasing power of individuals, organizations and the government and if there is one in the market the other one would not be. Here we can easily say that there is a negative relationship between these two terms and the basic purpose of this study is to determine the relationship by the literature review methodology. In the study the academic studies have been researched for defining the terms and the relations. Also, the effects of these terms to people and the producers have been determined. As seen from the daily life, the inflation is a cause and reason of financial crisis and the individuals' money power decreases day by day with the inflation. The study does not have an interview or a questionnaire application for the proof of the literature results and this has been accepted as the limitedness of the study.