In order to determine the value of a company, you need to figure out how fast you will grow and what earnings and profits will result. The best determiner of value is the open market. You can also come up with a realistic growth trajectory by using intrinsic value calculations. In this guide, we will show you how to calculate your business’s growth trajectory as well as some tips on how to keep that growth stable.
What Is Growth?
Defining growth seems like a simple enough task. Since you have access to revenue and profit data all you need to do is show how much total revenues increased over a given period of time. The easiest way to calculate this is a simple equation.
Growth rate times revenue is equal to today’s revenue minus last month’s revenue divided by the revenue and days in last month. Using this easy calculation, you can determine revenue over time. Once you can graph revenue over time, you calculate the growth rate by following the rates of change between data points.
A good chart can be found here.
Compound Rates of Growth
Most businesspeople can calculate month to month growth rates. However, anyone analyzing your business will want to look at your growth over a much longer timespan. This protects you and the analyst from reading small term bumps or blips as long-term growth or decline.
It is also important to note that if revenues do not grow with the company they can actually be in decline over time. If overhead increases faster than total revenue your short-term chart will be positive but on a longer scale, you will be losing money.
Seasonal Growth Rates
Another treacherous area of determining growth is the fact that many businesses do huge numbers in very specific seasons. For instance, an ice cream shop in the summer or a snowboard shop in the winter. These seasonal calculations need to be on point because they help determine how much stock and personnel need to be on hand for the next season.
Keeping Growth Stable
One way to ensure that your growth is measured is to have excess transportation capacity. Purchasing used trucks can help lower overall costs, companies like Arrow Truck Sales provide transportation purchase assistance. This is particularly important seasonally.
In order to survive in a competitive world, it is important to know how fast you are growing and planning accordingly. This knowledge will help keep your growth stable.