Growth Capacity Benchmark Calculation

May 10th, 2019

Growth Capacity

How it’s calculated

((Net Profit (bos) – Current assets – Current liabilities) / Total Income) * 100

See our for explanation of Net Profit (bos) (link to https://www.benchmarking.com.au/net-profit-benchmark-calculation/)

How it’s used

Growth Capacity is a benchmark which shows whether the business can afford to fund its growth. If the result here is a large positive number, then ‘growth’ should be reasonably easy to fund; if the result is negative, then growing the business will demand more working capital than the additional profit which is generated. A negative (or even a low positive result) is therefore a warning sign. To improve this ratio, either work to increase the ‘profit’ aspect of the equation, or work to reduce the working capital requirements of the business.

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