Where there are investments, innovation, internationalization, there is growth. Not only for the company, but also for the local area and the whole country system.
It seems an almost trivial assumption, but it is also the result of a survey conducted by Global Strategy on a sample of 522 realities, characterized by growth rates nine times higher than the average in terms of production value, with the capacity to triple in five years the operating income.
Long Term Planning
Among the SMEs in the world they are registering the highest growth rates, the presence of those linked to the food sector stands out.
In the analysis, international competitiveness is the point of arrival of a broader strategic path, which focuses above all on innovation, with 4% of revenues dedicated to R&D in addition to increasing investments (80% of the sample) made in new industrial processes and commercial developments.
Commitments respected thanks to a long-term approach, with 70% of the profits generated being reinvested within the company, reinforcing the net assets (this happens to 65% of the sample).
A wise investment is the purchase of new equipments, such the ones available at Filtervac International Inc., as well as the money spent by the company in training the employees about the latest technologies and softwares.
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Within The Next Years, the SME Will Be All Digitalized
Among the companies studied, in 80% of the cases they are family businesses, with a governance that in some form starts moving towards more advanced models.
The attitude to continuous innovation makes the sample involved particularly attentive to the possibilities envisaged by the digitalization of processes and products.
Although only 14% have already implemented a project under Industry 4.0, almost three quarters of the entrepreneurs selected in the survey intend to do so within the next years.
But do companies always reinvest profits?
The most striking cases on the values of the dividend payout ratio come from American experiences.
Apple, for example, announced it would start paying dividends only in 2012, after an absence that had lasted since 1995. On that occasion, the CEO, Tim Cook, thought that a Pay Out Ratio of zero would be difficult to justify considering the huge profit that had been recorded.
Berkshire Hathaway, Warren Buffett’s holding company, has never paid a dividend since its founding in 1965. To tell the truth, it happened only once in 1967, but Buffett later declared that the decision was one of the very few mistakes of his life. Buffett has always believed that the reinvestment of profits within the company is able to provide, through the growth of the share price over the long term, a greater value to the shareholders with respect to the flows deriving from the dividends. And the numbers just seem to agree with him: the price of a Berkshire Hathaway share has grown by around 700,000% from 1964 to 2014.
There are also cases of pay out ratios greater than 100%, that is when companies return more money to shareholders than profits made. In general, such high payouts are rarely sustainable over the long term and should warn investors that a dividend cut is now imminent.
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Today, taking a look at the companies in the most important US equity index (S&P 500), we note that less than half of corporate profits are distributed as dividends to shareholders. A downward trend that has continued for decades.