Surviving despite sales growth

Sambos Restaurant Chain is an example of a company that experienced substantial sales growth but which fostered inflexibility in its financial structure by failing to balance equity-capital investment with sales growth. Sambos enjoyed years of expansion but the firm became overburdened with debt service as a result of a decline in sales after 1978 and went bankrupt in 1982. Companies experiencing sales growth must plan for their resources and external financial needs: the primary element in financing growth is raising new equity. Where equity is limited and management desires to control debt ratios, it may have to limit sales growth. A sustainable growth model is presented which is designed to estimate the maximum amount of sales growth that can be handled without exceeding targeted debt ratios.