Dear @Mohamed, I do own a private company for 23 years, and I find, according to my experience, that some form of profit reinvestment may be good, but risky! I have used to do it with my partners, but the outcomes were different in different times! This crisis brought my and many other small companies to the end! So, I do read the experiences of some other experts!

http://www.inc.com/john-boitnott/how-much-of-your-business-capital-should-you-reinvest.html

http://smallbusiness.chron.com/advantages-reinvesting-profits-24699.html

http://www.theguardian.com/small-business-network/2012/nov/23/reinvesting-profits-small-business-best-tips

It´s not my field, but I´m waiting for ideas.

Dear @Mohamed, I do own a private company for 23 years, and I find, according to my experience, that some form of profit reinvestment may be good, but risky! I have used to do it with my partners, but the outcomes were different in different times! This crisis brought my and many other small companies to the end! So, I do read the experiences of some other experts!

http://www.inc.com/john-boitnott/how-much-of-your-business-capital-should-you-reinvest.html

http://smallbusiness.chron.com/advantages-reinvesting-profits-24699.html

http://www.theguardian.com/small-business-network/2012/nov/23/reinvesting-profits-small-business-best-tips

Considerably, it bears both the positives and negatives. Is it going to be sustainable? Is it fully profitable? In what time-frame can you achieve this growth? And more importantly, it depends on many outside factors like the current market demand & value of commercial enterprise in which you are reinvesting it.

Yes dear Mohamed, we can reinvest profits to help the business grow up.  The reinvestment should be on capital expenditure and not on expenses.

Dear Mohamed, you have asked an important question. I think the reply is certainly: yes. The reason for this is already mentioned by Mahfuz.

Thanks for sharing this question.

Is a company like a house? You have to repair it or reinvest in new constructions to make it more attractive or to adjust it to new (social) environments?

Nowadays the effective growth always comes back to the amount of cash that is available in the business. How, when and in what to invest the profits, are the core drivers of growth. Most importantly, to facilitate growth, is more of a requirement to survive/ sustain in business for long, else competitors will definitely overtake.

http://www.bizymoms.com/entrepreneur/library/reinvesting.html

In my humble opinion, growth is not a matter of life & death. At these difficult times, survival of a business is the first & foremost priority. If there is possibility for "good" growth through diversification, then it is fine. However, the mentalities ought to be prepared for (zero) growth in the years ahead.  

I am not an expert on the field, but I would say that it depends. It depends on the rate of expenditures vs profits of the company. In a deflationary environment where the profits remain steady and expenditures are low, it might be good to invest in growth(it would also be a matter of timing). as inflation takes hold, the growth prospects becomes a tough decision that I would weigh against overall profits, the expectation of additional market share, among other factors.

Just an opinion

Reinvestment of profits is a moral duty. It is the retribtution of the business class to the working class

Reinvestment depends on few factors such as profit made, forecasted costs for the period, budget, and forecasted profit.

The companies should not invest large amounts in one item which has an unclear return on investment. Investing smaller amounts in things which the company expects to generate a return for the business (marketing, promotion, PR, better systems), and then keep records on what is working, and where the organization/company can, reinvest these returns.

I think that reinvestment of profits supports business growth and is of great impact on the business in a country.

Dear Abedallah,

that´s the standard reaction. But I´m sure it will be misused. Just read the examples of our friends in this thread.

The 'current crisis' as mentioned depict volatility, and profit reinvestment is an appropriate approach in the face of this, since it has less implication on financial leveraging than other options.

It however depends on a few things as Behrous mentioned, most of which can limit the growth driven by profit reinvestment

In the end, the decision of profit reinvestment as the driver of growth has no strict conclusion, but depends on many factors which differ in organisations, hence, 'environmental' evaluation is inevitable in making decisions pertaining to growth drivers. 

I take on the negative side without carefull calculation reinvestment in growth in the crisis era may brought you also to crisis. Where reinvestment mean profit allocation to development of our business as it will take a lot of money in developing rather than selling the existing, if it absorb alot of money it takes more than we reinvest means there will be loan an in the time of crisis with high interest if it doesnt get profit immediately it will drowned the business.

So i'll say no for reinvestment on growth in the crisis era.

Dear  Mohamed:

Its very important reinvestment of profits to promote growth. But Iam no sure if profits in productive sector and financial sector have the same impact in the economic growth. 

Reinvestment of profits is part of Strategy and this should be as the strategy for the organisation has been so far. There are Group of companies who necessarily don't invest in the business for growth. Also the companies who solely depend on the profit may have a fixed set of reinvestment strategy to bring the business up year on year basis.

Solution to business growth thus cannot be merely depend on the reinvestment of profit rather its adversely affected if the company is not making much profit or just break even. 

Business Growth can be seen as two fold process - retrieve the profit of investment and restructure the solution to reinvest. This brings business growth in times when even profit may be souring and slimming margin. 

Investment and reinvestment are not to be confused!

Investment is related to allocate  financial means to a business area or project. Reinvesment is primarily a decision on which type of capital to allocate for the development af the Company or  activity. I share the concept expressed by Dirk Schaele: If you reinvest in activities where the return is lower than the WACC you will be destroying value for your company. Before growing activities with a lower return you should improve your activities performance to generate results above WACC.

I strongly recommend to take care of this principle in the value creation Strategy and, if there are no available projects that deserve reinvestment, it is reasonable and strategically  fair, Companywise, to return the exceeding  cash or financial means to the shareholders!

Alternatively the Board should make a strategic consideration: quoted or not quoted a Company is subject to competitive threats . A  "financially fat " Company is the ideal prey in the day by day chase in the business enviroment, particularly if it does not provide a proper financial return to the shareholders!.

Kind regards

Alberto

Business growth is subject to many issues but with respect to finance one needs to consider equity and debt and their optimal level. It is no good to pay out all your after tax profits as dividends  because the board cannot find a good investments. It is back to strategy and a good company must always have strategies to invest for  higher returns as well as borrow to finance growth ie solution to growth is debt +retained earnings because of the benefits associated with the two financing models.

Erick

The US-based provider of information technology, consulting, and business process outsourcing services, said that the net employee addition for the quarter was approximately 1,600. “As we celebrate the 15th anniversary of our public listing on the Nasdaq stock exchange, we are delighted to yet again deliver industry-leading revenue growth,” said Francisco D’Souza, Chief Executive Officer. “Our 15 year record of revenue and earnings growth is a testament to our long-term strategy of reinvesting in our business to stay relevant to our clients’ changing needs and to provide increasing value as we grow each of those trusted relationships. This reinvestment strategy continues to enable Cognizant to excel in our core services while simultaneously investing in multiple horizons of growth, thereby continuing to position us well for the future,” he said in a press release.

http://www.thehindubusinessline.com/industry-and-economy/info-tech/cognizant-beats-top3-indian-tech-majors/article4995648.ece

Reinvestment in companies, staff training and society needs to be increased more than 100%  every few years.  PERIOD.  If not, our society will tank.

Hi Mohamed, has asked a question that often appears in economies that have had a good and sustained performance over time but now face adverse circumstances do not allow them to grow, and further decrements.

The reinvestment is critical when an economy that is developed grows, and this matters a lot because we must create infrastructure, equipment, lay the foundation for further growth conditions and move towards better quality of life.

Sometimes countries and companies that are solid and have reached market conditions that allow them to achieve their goals with relative ease tend to displace their agendas reinvestment and just left on the agenda the issue of replacement. And it is not wrong if we assume there the conditions under which they operate are stable and will remain so, but that's not true either before or has been true before.

The reinvestment updated our productive potential and increases it allows us to create shields market, financial shields, shields against exchange rate volatility or tax.

It is true that in times of crisis is not easy to make decisions reinvestment because we have very short-term problems to solve and confront depletes resources, then the decision reinvestment can not be isolated but under an agreement or consent of all agents in the economy.

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Hola Mohamed, has hecho una pregunta que suele aparecer en economías que han tenido una performance buena y sostenida en el tiempo pero que ahora se enfrentan a circunstancias adversas que no les permite crecer, y aún más los hace decrecer.

La reinversión es fundamental cuando una economía que no es desarrollada crece, y aquí importa mucho pues debemos crear infraestructura, equipamiento, sentar las bases para seguir creciendo y avanzar hacia condiciones de mejor calidad de vida.

A veces los países y las empresas que son sólidas y han alcanzado condiciones de mercado que les permite lograr sus objetivos con relativa facilidad tienden a desplazar de sus agendas el tema de la reinversión y solo dejan en la agenda el tema de reposición. Y no está mal si asuminos que las condiciones en las que se desenvuelven son estables y permanecerán así, pero eso no es cierto ni antes ni ha sido cierto antes.

La reinversión actualiza nuestro potencial productivo y lo aumenta, nos permite crear escudos de mercado, escudos financieros, escudos contra la volatilidad cambiaria o tributaria.

Es cierto que en épocas de crisis no es fácil tomar decisiones de reinversión porque tenemos problemas de muy corto plazo que resolver y enfrentarlas agota recursos, entonces la decisión de reinversión no puede ser aislada sino bajo un acuerdo o consentimiento de todos los agentes de la economía.

Example

MTI Group returned in excess of $100m turnover for FY13. For the 8th year in succession we have delivered double digit growth, along with healthy bottom line. We continue to adopt a sensible approach towards financing our business, with strong financial standing and reserves, plus significant US equity funding, to enable reinvestment and deliver profitable growth year on year. Our financial record of profitable growth is one we are proud of maintaining during one of the most challenging recessions of all time.

http://mti.com/about-us/our-company

It is not easy to give a general rule about reinvestment versus growth. Sometimes, it will be wise to allocate part of the profits to reinvestment with a consequent growth but the stakeholders ought to be informed. Sometimes, the company will retain some profits & distribute dividens on shareholders generously accepting zero growth temporarily. The company requires power of prediction for proper decision making.

https://www.sba.gov/sites/default/files/Financial%20Management%20For%20Growing%20Businesses_0.pdf