n Management Dynamics : Journal of the Southern African Institute for Management Scientists - Sustainable company growth as measured by cash flow

Volume 22, Issue 2
  • ISSN : 1019-567X



This study focuses on the sustainable growth planning of firms based on cash flow constraints - a distinct variation on traditionally-published studies on sustainable growth that are based on income statement and statement of financial position variables. The traditional concept is useful for capital-intensive firms but less useful for working-capital-intensive firms, especially those with long working capital cycles. Such firms have to monitor cash from operating activities (CFO) rather rigorously. Considering sustainable growth from this cash flow angle is rare in the literature. The present study compares and builds on two of the few published examples: the self-financeable growth (SFG) rate proposed by Churchill and Mullins (2001), and the cash flow sustainable growth rate (CFSGR) proposed by Hamman (1996). The study demonstrates that by calculating a specific break-even growth point in the case of the CFSGR, a more accurate growth rate is estimated than with the SFG rate, which renders a more conservative approximation. The study expands the basic definition of CFSGR to make it useful when considering a range of typical real-world target variables. The ability to calculate a cash flow break-even point equips financial managers to optimise cash resources to the benefit of the firm when reviewing financing, investing, and operational activities.

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