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All companies grow exponentially. Any compounded growth is exponential. The k in e^(kt) can be anything. You perhaps meant to say, investors want way-better-tha
by shas3 11y ago
All companies grow exponentially. Any compounded growth is exponential. The k in e^(kt) can be anything. You perhaps meant to say, investors want way-better-than-S&P-and-in-line-with-APPL/GOOG/FB growth?
- baddox 11y agoAll companies? Surely some companies have linear growth.
- shas3 11y agoFinancial terminology doesn't distinguish between linear and exponential. Linearly growing companies would simply be assigned very low (close to 0 / positive) CAGRs.
- xyzzy4 11y agoI agree. For example, if you spend exactly $1000 on advertising a day, and have no network effects, you will get linear user growth.
- rubyn00bie 11y agoLinear growth is not really growth, in a financial sense, as growth is when the derivative (rate of change) is increasing/decreasing. Linear growth by how I interpret it, would have a derivative of zero, i.e. the rate of change is constant, or geometrically speaking, a straight line.
- jeremyjh 11y agoSuppose a company increases their gross revenue by 1MM every year. What do you call that? I'd call it linear, because it will be a straight line on a graph.
- shas3 11y agoThat would be linear only if the inflation is 0. Inflation adjusted growth rate will not be fully linear.
- dragonwriter 11y ago> All companies grow exponentially. No, they don't. > Any compounded growth is exponential Not all growth is compounded in a way that fits an exponential curve. Sure, any single interval (two data point) growth will fit some exponential curve, but once you get a second interval, it may or may not fit (or be approximated by) any exponential curve.
- shas3 11y agoUnless you specify an error, all growth can be approximated with exponentials. In fact, by your logic, even investors don't desire exponential growth. Why specifically would they want the growth of their investments to follow the rule that the derivative of the revenue is proportional to the revenue? Investors surely wouldn't mind factorial growth :) . It is just that metrics like CAGR are convenient and very rough approximations of the reality, designed to make the concept of growth intuitively year-on-year. In reality companies don't grow exponentially, we use exponential models to define company growth. The exponential model is fully arbitrary, with the k being as small as you please (linear growth is sometimes even defined by low CAGR numbers like 0.1%, etc.)
- dragonwriter 11y ago> Why specifically would they want the growth of their investments to follow the rule that the derivative of the revenue is proportional to the revenue? Well, I think more precisely they want the growth to be at least exponential; they'd be happy with super-exponential growth (increasing, rather than constant, k over subsequent intervals.) They also want a minimum value of k.