Apple Inc. Sustainability Growth Rate

The Apple Inc. sustainable growth rate will involve measuring the profitability or return on equity and dividend payout ratio. Therefore, the rate multiplies the company’s ROE by its plowback ratio which is equal to one minus dividend payout ratio ( Melina and Zanna, 2016) . Additionally, the sustainable growth rate of Apple Inc. can be obtained by multiplying four operational variables which include profit margin, assets to equity ratio, asset turnover ratio, and retention rate (SGR=PART). Profit margin is the net profit divided by the revenue; retention rate is one minus the dividend payout ratio. Asset turnover is the sales revenue divided by total assets while the asset to equity ratio is the total assets over the shareholder's equity. The result of the sustainable growth equation will then be used in making the adjustment for the business. Below is the analysis of the company’s SGR.

Apple Inc. growth may be viewed as a feasible step especially when it is faster. However, it is not necessary as the company may run into financial problems and to avoid such problems it has to move a sustainable growth rate. According to the results above, it means that applying the revenue generated the Apple Inc. may grow at slightly more than 29.1%. Also, it signifies that Apple Inc. SGR is facing a major problem in supporting the company growth potentials. In this sense, the Company should be able to apply debt and debt in financing its growth. Thus, if the growth is fast and there are inadequate funds the company may experience difficulties in sustaining growth ( Reschovsky and Converse, 2015) . On the other hand, too much slow growth will stagnate. The sustainable growth rate is the growth rate that the company can achieve without having to strain its resources through debt financing. Further, it is an important concept that should be used by the company in identifying the breakeven point. At this point, it is the minimum revenue that should be generated for the business to remain operational. On the other hand, the sustainable growth rate can be interpreted as the maximum revenue of the business. Notably, the growth can take place without much exhaustion of the cash or new financing. The comparison between the company SGR and actual growth rate shows that they have a common trend which is unstable within the average of three years. For instance, the revenue actual growth rate declined from 27.86% to -7.73% from 2015 to 2016. The same trend applies in the SGR although it is higher than the actual growth rate.

Effects of Inconsistent Sustainable Growth Rate of Apple-Inc

Attaining a sustainable growth is the major concern of the firm’s owner and executives. The inconsistent condition of growth rate means it is either too fast or slow. Also, the stability depends on the ability of the company to keep the pace of their expansion, maintain and attract qualified employees and to fill orders. The inconsistency of sustainability growth rate has various consequences to the firm. Some of these consequences include the difficult in expanding debt to equity ratio, assets liquidation and other measures of company's finance growth. The only growth rate that can be influenced by the firm is the sustainability growth rate, and therefore its inconsequential may hurt the financial ratios. Similarly, the decision pursued by the management may also affect the sustainable growth rate of the firm. For instance, the decision to boost sales may leave the company in a position where it is straining to fund operation’s cash needs. If the growth is too high, it is possible that the company will have to spend heavily before generating positive cash flows. Thus, after a higher spending the firm will be forced to source for more capital, and when it is insufficient, the company, as well as its investors, may be faced with problems of running operations. In the cases where the company has a continuous increase in growth at a very high rate, it is important to assess whether the growth is long term or short term. Thus, in the event where the growth is long term, the company is in a position to liquidate new equity, enhance financial control and lastly lower its dividend payouts.

Similarly, in the effort to retain more income, the company may outsource and increase their prices or create a partnership with a more stable company. However, when making the link up, it is important and teaming should result in win-win situations. In every business, deciphering whether the growth is long term or short term is important. Thus, an internal review is necessary for determining whether the problem can be improved. The overview involves undertaking the analysis of the current business performance. After the overview, the business should focus on the option that seems to be most logical (Fonseka and Ramos, 2012). At this point, the company will be forced to increase expenses as well as creating the organization growth. Additionally, if this alternative fails the funds can be distributed to the shareholders; review the stock prices and wait for the price to decrease. However, the best option would be to redistribute the funds to the shareholders. Notably, it is important to ensure that the business is running efficiently before pursuing any growth strategies. If the company grows its rate above the SGR, it will be able to finance its excessive growth either in the long-term or short-term. In this sense, debt is the best option for funding the excessive growth of the company. Therefore, based on the Apple Inc. SGR analysis is not in a position to maximize the value of the company given the level of risk. The major reason is that the average SGR for three years is not consistent with the Apple Inc. actual growth rates. Also, there is a significant decline in the sustainability growth rate over the last one year.

Effects of SGR to Stockholders Reward

Though rapid growth in revenue, as well as earnings, is the prime goal of the executives, it is not always best to the reward of the stockholders. Stockholders will likely invest in companies with growth stocks as they believe that it will reinvest their funds for a higher return. However, according to Mortal and Schill, (2015), if the company grew at a rate above the SGR, their share price performs poorly than those with slower growth. In other words, the company would prefer maintaining its growth rate and stock price worsen.

References

Fonseka, M. M., Ramos, C. G., & Tian, G. L. (2012). The most appropriate sustainable growth rate model for managers and researchers.Journal of Applied Business Research (JABR),28(3), 481-500.

Melina, G., Yang, S. C. S., & Zanna, L. F. (2016). Debt sustainability, public investment, and natural resources in developing countries: The DIGNAR model.    Economic Modelling ,    52 , 630-649. 

Mortal, S., & Schill, M. J. (2015). The Post-Acquisition Returns of Stock Deals: Evidence of the Pervasiveness of the Asset Growth Effect.Journal of Financial and Quantitative Analysis,50(03), 477-507.

Reschovsky, J. D., Converse, L., & Rich, E. C. (2015). Solving the sustainable growth rate formula conundrum continues steps toward cost savings and care improvements.    Health Affairs , 10-1377.