Marris’s Theory Of Growth Maximization
Managers may decide to adopt a longer-term standpoint and focus on growth maximization rather than maximizing short run revenues. Growth is usually measured in terms of growth of sales revenue but can be to measure the capital value of the firm. It is felt that the alternative method is less reliable as it will be influenced by stock market trends. A firm looking to maximize growth should be clear about the period that this will be delivered over.
Large firms have more influence over market price as they are large enough to be price setters. Large firms also often enjoy economies of scale. This means that a business has lower unit costs because of its large size. They can buy raw materials cheaply in bulk and also spread the high cost of marketing campaigns and overheads across larger sales.
Growth by internal expansion
Internal growth is achieved by increasing sales which requires an increase to productive capacity. Sales are likely to be maximized through product promotion and introduction of new products to the market and new investment will be required to increase productive capacity. Firms need to market effectively, invest in new equipment and capital and in labor. These activities will require financial investment.
In short-run the firm can finance growth by retaining profits, a share issue or borrowing. The amount of finance that the firm can raise will determine how quickly the firm can grow. In the long run rapid growth may lead to increased profits assuming economies of scale can be realized and it can take a larger share of the market. Further growth can be financed from these profits.
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