Modest Growth Essay

Modest growth
With the increment of share price being a factor of exogenous factors, and the ROCE not keeping up to expectations, the disappointment and dismay of the shareholders are growing. Corporate management of giant firms have to appease the shareholders, therefore the raising in the rate of sales-growth became a well-founded option. However in the case of the giant firms real sales growth are humble, and this bring about doubts on the corporate management’s ability to luxuriate growth in GDP without acquiring competitive firms. Majority firms have managed to attain exceptional sales-growth are companies are actively engaging in acquiring other competitor firms and divesting them to generate more profits and give more shareholders return.

This can be understand as when the size of cake is unable to be further increased, the corporate management would have to redistribute and give capital a higher share of the cake. US major companies in the 1990s has been saving cost by cutting down manpower and distribute it to the shareholders. However there is limited evidence to support that major firms are redistributing labour to capital. In the 1990s there has been clear evidence that the dividends that being distributed to the shareholders are going on an increasing trend, even when in the late 1990s where the net profit of the firm is experiencing a drop. Evidence has also showed that in the early 2000s the dividends distributed has even surpass the net profits. This approach is used to favour the shareholders, but it does not contribute to long-term company growth. With a huge portion of company’s earning being distributed to shareholders, the company does not retain much cash to enable to do more research and innovation, and to expand their businesses to generate more revenues in the future. This approach is destructive to the company’s future, therefore cutback on the company’s ability to generate long-term shareholders’