The business environment, it seems, is forever being thrown into uncertainty by external factors like the weather and uncertainty of the economy. And if the overall climate appears to be imperious, then its participants are left in no doubt about their business opportunities.
However, such uncertainty does not necessarily mean that an individual or a company cannot invest in the market. In fact, there are ways in which a business can both grow its earnings and improve its financial stability. In this article, we shall look at the reasons why business growth and financial stability are inextricably linked.
Growth of earnings means increasing market share. That means more revenue for the company. It also means a higher profit margin. In essence, earnings imply the amount of revenue generated.
The growth of earnings leads to the growth in revenue. But that is only the case if the company can sustain its market share despite fluctuations in revenue. For example, if it was to suffer losses due to unfavorable currency exchange rates, its growth in earnings would be affected.
Financial stability, on the other hand, is measured by the ability of a company to generate enough cash to pay its debts, especially those that have the highest interest rates. Hence, investors trust companies that are able to retain sufficient funds even during uncertain economic conditions. This is because any investor is seeking stable money – not volatile investment opportunities.
Business growth and financial stability are dependent on each other. To illustrate this point, here are some examples:
The chances of sustaining growth in business growth and financial stability is a good indication of the company’s capacity to generate sufficient cash. Of course, businesses with limited sources of cash are more likely to suffer fluctuations in revenue.
The better financial stability of a company is reflected in its ability to pay its debts. The higher the debt-to-revenue ratio is, the higher the chances are that the company will be able to keep its creditors happy. A high debt-to-revenue ratio means that the company is in a precarious financial position.
As a part of its business growth, a company can invest in business opportunities. By making investments, the company can earn positive returns. As a result, its employees and shareholders are all rewarded.
With a sound risk management strategy, companies can ensure their investments are rewarded by earning positive results. Once the company has invested in the right business opportunities, the returns will more than makeup for the risk.
These three key elements of risk management are therefore interrelated. They are essential components of a successful business, which is why companies look for financial stability and growth in the same report.
When your business looks to secure investments, its success will hinge on its ability to grow its revenue and to maintain a strong financial position. As long as these two elements exist, you can rest assured that your investments will grow as well.