1887

n South African Journal of Business Management - The danger of high growth combined with a large non-cash working capital base - a descriptive analysis

Volume 33, Issue 1
  • ISSN : 2078-5585

Abstract

A high growth rate may not be the ultimate measure of a successful company. This article shows that growth at too high a rate, for a company with a high non-cash working capital component, may lead to financial difficulties.


While the income statement of a company is based on the accrual of income and expenses, the cash flow statement is based on the receipt and payment of cash. A company experiencing high sales growth, depending on the extent of its noncash working capital, will find that the cash flow from operating activities before the payment of dividends will not grow as quickly as the net profit after taxation. This is because the accrual part included in the net profit after taxation is also growing at a high rate. At such a growth rate, operating activities do not generate sufficient cash to sustain the day-to-day activities of the company.

Loading full text...

Full text loading...

Loading

Article metrics loading...

/content/busman/33/1/EJC22193
2002-03-01
2019-08-26

This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error