The Impact of Sales and Income Growth on Profitability and Market Measures in Actual and Simulated Industries

Authors

  • William C. House
  • Michael E. Benefield

Abstract

Research and development expenditures, advertising outlays, and asset growth, as a proxy for plant and equipment expenditures, can logically be expected to influence sales and income growth in similar ways in different environments. If sales and income growth affect profitability and market value measures in simulated and actual environments, the leverage variables may have an indirect as well as a direct impact on profitability and market value. Income growth has the most significant impact on profitability and market value in the business game while asset growth is the most significant variable affecting financial performance in the executive game. Sales growth is the most significant growth variable affecting financial performance in the actual industries examined. The indirect effects vary widely from industry to industry, but research intensity appears to negatively impact sales growth in the durable products industry and has a positive impact on sales growth in the nondurable products industry.

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Published

1995-03-06