The fifth chapter, entitled “Growing the business” discusses the need for growth, shareholder value, benefits of growth and growth strategies. The relationship of risk and reward is also covered in this chapter which is a very extensive topic itself. Risk and reward relationship is explained briefly using hospitality industry related examples. | Chapter 5 Growing the Business Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Chapter Overview Need for Growth Shareholder Value Benefits of Growth Growth Strategies Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Need for Growth Essential to a company’s success Private company owners expect profits, cash flow, and ROI to increase Stockholders expect the price of their stock to rise Growth company’s earnings increase at least 15% each year Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Shareholder Value Shareholder Value = Market Value Market Value Public Company Current market price of common stock multiplied by number of shares outstanding Private Company Sale price of the company on the open market Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Public Company Goals Increase earnings per share (EPS) EPS = EBIDTA / Shares of Common Stock Increase the company’s stock multiple Multiple = Current Market Price / EPS Increase the market price of common stock Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Risk and Reward Investors are risk averse The greater the risk, the higher the ROI demanded by investors Beta Market-related risk measurement Market beta = 1 Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Private Company Goals Increase cash flow Generate a favorable return for owners Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Benefits of Growth Clear career paths for employees Attract qualified employees Increase market share Limit new competition Diversify risk Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Growth Strategies Increase sales and Productivity of Existing Properties Increase Profit Margin Increase sales Reduce expenses Increase labor productivity Reduce credit card commissions Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Growth Strategies Expansion of Physical Facilities Focus on current or new . | Chapter 5 Growing the Business Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Chapter Overview Need for Growth Shareholder Value Benefits of Growth Growth Strategies Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Need for Growth Essential to a company’s success Private company owners expect profits, cash flow, and ROI to increase Stockholders expect the price of their stock to rise Growth company’s earnings increase at least 15% each year Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Shareholder Value Shareholder Value = Market Value Market Value Public Company Current market price of common stock multiplied by number of shares outstanding Private Company Sale price of the company on the open market Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Public Company Goals Increase earnings per share (EPS) EPS = EBIDTA / Shares of Common Stock Increase the company’s stock multiple Multiple = Current Market Price / EPS .
