1. Irwin/McGraw-Hill Chapter 4 Managing Growth

2. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-2 FIGURE 4-1 New Sales Require New Assets, Which Must Be Financed New borrowings Increases in Owners’ equity New assets supporting increased sales Assets Liabilities and owners’ equity

3. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-3 FIGURE 4-2 A Graphical Representation of Sustainable Growth Cash deficits Balanced growth g* = 1.4  ROA Balanced growth g* = 0.4  ROA Cash surpluses

4. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-4 TABLE 4-1 A Sustainable Growth Analysis of Triad Guarantee Inc., 1994 - 1998

5. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-5 FIGURE 4-3 Triad Guarantee Inc., Sustainable Growth Challenges, 1994 - 1998

6. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-6 TABLE 4-2 Sources of Capital to U.S. Nonfinancial Corporations, 1965 - 1998 Sources: Federal Reserve System, Flow of Funds Accounts, 1949-78, and Flow of Funds Accounts, various issues. Available at http://www.bog.frb.fed.us/releases/z1/htm.

7. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-7 FIGURE 4-4 Net New Equity Issues, 1965 - 1998 Sources: Federal Reserve System, Flow of Funds Accounts, 1949-78 and various issues; OECD, Financial Statistics, Part 2, Financial Accounts of OECD Countries, various issues.

8. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-8 FIGURE 4-5 Gross New Equity Issues and Initial Public Offerings, 1970 -1998 Continued

9. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-9 Note: New equity includes limited partnerships, preferred stock, and other equity. Sources: Federal Reserve Bulletin, Table 1.46, “Securities Markets and Corporate Finance,” various issues for gross new equity issues; Securities Data Corporation as cited in Scott Reeves, “Best & Worst,” Barron’s, December 15, 1997, for initial public offerings. FIGURE 4-5 (Concluded) Footnote

10. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-10 TABLE 4-3 The Timberland Company, Sustainable Growth Calculations, 1995 - 1998

11. Irwin/McGraw-HillCopyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 4-11 FIGURE 4-6 Timberland Company’s Sustainable Growth Problems, 1995 -1998