Magazine article Management Today

Capital No Substitute for Acumen

Magazine article Management Today

Capital No Substitute for Acumen

Article excerpt

Who wants money these days? Well, every entrepreneur starting up a business, manufacturing companies that need to keep investing in equipment, acquisitive businesses, and, of course, emerging economies. But the most startling aspect of the current need for money is, as Sherlock Holmes would have noted, the dog that isn't barking: a lot of dynamic, growing businesses just don't seem to need external funding anymore.

Take two of the world's most successful high growth businesses, Microsoft and Reuters. Both have been expanding at an impressive rate, a process which would normally demand capital for its financing. Yet Microsoft's accounts show cash in the balance sheet of $6.9 billion (not bad for a business whose sales are $8.7 billion and were only $1.8 billion five years ago). Similarly Reuters, whose turnover has almost doubled in the last five years, sits with its balance sheet overflowing with cash which it is trying (this time in vain) to return to shareholders. And for many less established companies, the story is the same. 3i's recent Quest for Growth awards for small high-growth businesses threw up numbers of new companies, whose arrival owed little to funding by 3i or its competitors along the way.

As the service sector continues to account for an increasing share of GDP in the more mature economies, this pattern will become increasingly familiar: a high proportion of successful high-growth businesses will have limited need for external capital because they can finance their growth internally. …

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