Whilst analyzing the annual reports of companies, can we spot what are so called growth companies?

Let’s look at different interpretation of growth companies from the view point of the following two great investors:

Benjamin Graham:-

considers it as a company that has performed better than the industry average over a period of years and is expected to continue to do so in the future.

Warren Buffett:-

growth companies have long-term pricing power and sustainable moat. [Long term pricing would mean the ability to increase prices even when product demand is flat or the ability to achieve large volume increases with only small additional capital investment whilst sustainable moat is regarded as the entry barrier that current competitors and potential entrants find impossible to break. Hence to him, high growth companies are those that show high growth in sales and good profit margin.

Hence the above showed that when investors invest in growth companies, they are hoping to invest in companies with products or services that are still in high demand and have an edge over other competitors.

Sound familiar? -likely indicators are consistently strong sales and earnings/profits which are above industry average.

Incidentally, it’s important to note that in reality, it is impossible for a true growth company to exist for an infinite time period in a relatively competitive economy.

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.

Related Entries

• Assessing The Quality Of Management
• Factors Affecting Pricing(Part 1)
• The Debt Or Equity Decision
• AmInvestment Launched Property Fund To Invest In Properties & REIT
• Balanced Scorecard: Examples Of Customer Perspective KPI