The Essence of Economic Theories in Evaluating Business Performance

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The authors of the journal, “Do profit margins expand for high growth firms?” appreciate the essence of economic theories in evaluating business performance. However, the approaches may often succumb to generalizations and assumptions inapplicable in an empirical study. Beliefs often arise from the uncontextualized importation of concepts. In this context, the authors explore the hypothesis that high-growth enterprises necessarily exhibit lowered costs and increased profit margins.
The article depends on scale efficiency, an attribute of economies of scale. The aspects are expected to be observed in the average growth of an enterprise. According to the text, the authors anticipate a company that has just launched or gone public to register exponential growth. As a result, the firm will experience fewer sales at the earlier stages. The factor must be prudently handled for the success of the business. The recognition of the facts necessitates the formulation of guiding theories. Economies of scale define the strategic and convenient lowering of unit costs as the firm grows bigger (Ertan et al., 2020). This implementation spreads out the profit gain over a broader range of transactions. Thus, a scale determines the effectiveness of the described balancing. Scale efficiency illustrates the optimum point when rationing is most effective (Ertan et al., 2020). Contrary to conventional wisdom, the authors discover that the average cost does not decrease with increasing scales as anticipated.
The age of the companies is established as the baseline from which one can track other variations. The secondary variables are the cost/sales ratio (CR) and the profit margin (PM). The CR is defined by production cost, selling general and administrative expenses (SG&A) and depreciation and amortization (D&A), and net operating assets (NOA) (Ertan et al., 2020). For optimal scale frequencies to exist, all four components should decline. On the oth...