Financial planners define the sustainable growth rate (SGR) as the maximum rate of growth that an organization can maintain without issuing additional equity. SGR ensures that growth is funded from retained earnings and additional debt, without modifying the firm's debt ratio. While the SGR is easy to understand, develop, and implement in well-established firms in mature industries, the financial SGR rarely represents the "speed limit" for emerging firms or firms competing in dynamic industries. Two reasons push organizations beyond their SGR. First, there are strategic imperatives that suggest aggressive growth rates beyond what is financially sustainable in the short-term-first mover advantage, leveraging on economies of scale, "winner-takes-all" markets, "get-big-fast" strategies, etc. Second, dynamic capital markets, investors' optimism, and corporate spin-offs with secured resources, distort or eliminate the funding limitation that traditionally limit growth rates. Aggressive growth rates, however, overstretch the firms' resources, leading to a poor work environment, inadequate customer service, and/or disappointing returns to shareholders. Overstretched firm's resources frequently result in reinforcing feedback processes (vicious cycles) that take the firm out of business.
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