Introduction
The term self-supporting growth rate refers to the maximum growth rate that a company can sustain by relying on its resources. A successful self-supporting growth rate allows a firm to be independent of external capital, which is typically utilized to promote advancement and secure higher outputs (Leach & Melicher, 2020).
Discussion
The described definition is also used in the Additional Funds Needed equation (AFN) to calculate how many financial resources are needed to acquire extra funding and expand the corporation’s current span of activities. In the AFN, the self-supporting growth rate is represented as the projected increase in assets, the first part of the equation (Leach & Melicher, 2020). In the modified equation, self-supporting growth can be calculated by multiplying the company’s profit margin, the firm’s retained earnings in percentages, and the previous year’s sales (Leach & Melicher, 2020). After that, the product is to be divided by the assets minus the level of liabilities and the multiplication of the profit margin, the retained earnings in percentages, and the previous year’s sales.
Entrenched management representatives might perform several actions that would be damaging to the stakeholders. First of all, the managers might utilize an excessive amount of company resources for personal gain, enhancing their benefits and attaining additional financial and corporate promotions (Di Meo et al., 2017). Examples of such behavior are unjustified pay raises, relocation to more expensive offices, and an increase in health insurance coverage.
Conclusion
In conclusion, the representatives of entrenched management might use their influence to hire workers based on family or personal relationships rather than their professional capabilities (Di Meo et al., 2017). In these cases, the corporations’ outputs can be significantly decreased, harming the companies standing and incurring losses for the shareholders.
References
Di Meo, F., GarcĂa Lara, J. M., & Surroca, J. A. (2017). Managerial entrenchment and earnings management.Journal of Accounting and Public Policy, 36(5), 399–414. Web.
Leach, J. C., & Melicher, R. W. (2020). Entrepreneurial Finance. Cengage Learning.