Relative Value of Growth
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What is the Relative Value of Growth?The Relative Value of Growth framework (RVG) from Nathaniel J. Mass is a technique that can be used for comparing how growth- and margin improvement effect shareholder value. The relative value of growth expresses the value of an extra percentage point of growth as a multiple of the value of a percentage point increase in a company's operating profit margin. If the multiple is higher, the growth will be more valuable to a company. An RVG of 3, for example, means that a firm would generate three times
as much shareholder value by adding 1% of growth, than it would add by increasing
operating profit by 1%. Mass claims that the shareholder value creation potential of growth strategies often outweighs by a factor that of Cost Cutting strategies. In his article in HBR of April 2005, Mass concludes furthermore that growth is often far more valuable than managers think, especially when considering long-term. Calculation of the Relative Value of Growth. FormulaRVG is calculated by dividing the value of 1% revenue growth by the value of 1% margin improvement (see fig). Usage the Relative Value of Growth model. Applications
Strengths of the Relative Value of Growth framework. Benefits
Limitations of the Relative Value of Growth method. Disadvantages
Assumptions of the Relative Value of Growth model. Conditions
Compare with Mass's Relative Value of Growth: PEG Ratio | Economic Value Added | Market Value Added | CFROI | CAPM | WACC | Discounted Cash Flow | Return on Investment | EBIT | EBITDA | Growth Phases | BCG Matrix | Product Life Cycle | Product/Market Grid | Profit Pools | Competitive Advantage framework | Rule of Three Return to Management Hub: Decision-making & Valuation | Finance & Investing | Marketing & Sales | Strategy & Innovation |
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