Growths, ROIC, CROIC, Reinvestment Capacity & Capex/IC Relationship and Correction

Subject:

Growths, ROIC, CROIC, Reinvestment Capacity & Capex/IC Relationship and Correction

.

(A) Imperfect Hypothesis remains imperfect :

.

Imperfect Hypothesized Expected Growth Formula

= ROIC TTM × Reinvestment Capacity Ratio

.

(B) Reality :

.

Actual Net Profit Growth TTM

= ROIC TTM × Reinvestment Capacity Ratio TTM × Net Profit Growth Conversion Efficiency Ratio TTM

or

= CROIC TTM × Capex/Invested Capital Ratio TTM × Net Profit Growth Conversion Efficiency Ratio TTM

.

Expanded to Future:

Expected Forward Growth

= Forward ROIC × Forward Reinvestment Capacity Ratio × Forward Growth Conversion Efficiency Ratio

or

= Forward CROIC × Forward Capex/Invested Capital Ratio TTM × Forward Growth Conversion Efficiency Ratio

.

Literally,

.

Growth Conversion Efficiency

= Actual Growth ÷ ( ROIC × Reinvestment Capacity Ratio )

or

= Actual Growth ÷ ( CROIC × Capex/Invested Capital Ratio )

.

(C) The same concept applies to :

.

Actual FCF Growth TTM

= ROIC TTM × Reinvestment Capacity Ratio TTM × FCF Growth Conversion Efficiency Ratio TTM

or

= CROIC TTM × CAPEX/Invested Capital Ratio TTM × FCF Growth Conversion Efficiency Ratio TTM

.

Actual Revenue Growth TTM

= ROIC TTM × Reinvestment Capacity Ratio TTM × Revenue Growth Conversion Efficiency Ratio TTM

or

= CROIC TTM × CAPEX/Invested Capital Ratio TTM × Revenue Growth Conversion Efficiency Ratio TTM