[5] In general, these link long term profitability targets, dividend policy, and capital structure assumptions, returning the sustainable, long-run business growth-rate attainable as a function of these.
These formulae reflect the general requirement that all assumptions are internally consistent; see Financial modeling § Accounting.
The sustainable growth rate may be returned via the following formula: [6] Note that the model presented here, assumes several simplifications: the profit margin remains stable; the proportion of assets and sales remains stable; related, the value of existing assets is maintained after depreciation; the company maintains its current capital structure and dividend payout policy.
A check on the formula inputs, and on the resultant growth number, is provided by a respective twofold economic argument.
Due to this long time period, the authors consider their findings as to a large extent independent of specific economic cycles.
[4] In the long-term and across industries, total shareholder value creation (stock price development plus dividend payments) rises steadily with increasing revenue growth rates.
Ben-Hafaïedh & Hamelin (2022) undertook a replication on more than 650,000 firms and confirmed the same main result separately in each of 28 studied countries as well as across industry sectors, firm age and size classes, time spans from 1 to 7 years, alternative growth and profitability measures, and using several alternative analysis techniques.
The Optimal Growth concept by Martin Handschuh, Hannes Lösch, Björn Heyden et al. has no restrictions to certain strategies or business model and is therefore more flexible in its applicability.
Additionally, considering the increasing criticism of excessive growth and shareholder value orientation by philosophers, economists and also managers, e.g. Stéphane Hessel, Kenneth Boulding, Jack Welch (nowadays), one might expect that investors' investment criteria might also change in the future.