Abstract

W.D. Hamman, Graduate School of Business, University of Stellenbosch Sustainable growth: A cash flow model - Investment Basics XXXIII 1.1NTRODUCTION capital. As a result the company does not have deprecia­ tion of fixed assets and no interest on borrowed capital. A company's sustainable growth depends partly on the rate at which it can generate funds available for commit­ Assume further that no dividends are proposed and paid ment to the growth target and the return it can expect to and that taxes will be fully paid by year-end. earn on these funds. The sources of these funds are retained income, additional borrowed capital (debt) and In the example of Trixie, sales in 1996 will be 1 800 units at new equity issues. a selling price of R4 per unit. The cost price per unit equals R3. A well-known model is that of the Boston Consulting Group's Model (BCG) (Zakon, 1 968): TRIXIE INCOME STATEMENT FOR THE YEAR TO 31 DECEM­ SG = [D/E. (R-i).p] + R.p BER 1996 where Sales 1 800 units at R4 7200 Cost of sales 1 800 units at R3 5400 SG sustainable growth rate; 1 800 units at R1 1 800 Gross income D/E