Rule of 16 (ATC Version)
Rule of 16 (ATC Version) is meanth to replace Rule of 40.
.
Rule of 16 (ATC Version)
= Geometric Mean of (Revenue Growth & ROIC)
= 100 × { √[ (1+Revenue Growth Ratio) × (1+ROIC Ratio) ] - 1 }
Or
= √[ Revenue Growth × ROIC ]
.
Notes:
ROIC (preferably)
= 100 × Net Profit ÷ (Total Equity + Total Interest Bearing Debts)
.
Rule of 16 (ATC Version) is applicable to all companies regardless of capital intensity.
.
Case Study :
.
(1)
PDD
(Financial 2025.Sep.Q3.TTM)
Revenue Growth
≈ 12.5 %
.
ROIC
= 100 × Net Profit ÷ (Total Equity + Total Interest Bearing Debts)
≈ 25.4 %
.
Rule of 16 (ATC Version)
= √[ Revenue Growth × ROIC ]
= √(12.5×25.4)
= 17.8185296812%
> 16%
Or
Rule of 16 (ATC Version)
= 100 × { √[ (1+Revenue Growth Ratio) × (1+ROIC Ratio) ] - 1 }
= 100×(√(1.125×1.254)-1)
= 18.774997369%
> 16%
.
(2)
PDD
(Financial Year Ending 2022)
Ratio datas are extracted from marketscreenerdotcom.
Revenue Growth ≈ 38.96%
ROIC ≈ 17.07%
.
Rule of 16 (ATC Version)
= √[ Revenue Growth × ROIC ]
= √(38.96×17.07)
= 25.788509069
> 16%
Or
Rule of 16 (ATC Version)
= 100 × { √[ (1+Revenue Growth Ratio) × (1+ROIC Ratio)
] - 1 }
= 100×(√((1+0.3896)×(1+0.1707))-1)
= 27.5462551391%
> 16%
.
(3)
PDD
(Financial Year Ending 2019)
Ratio datas are extracted from marketscreenerdotcom.
Revenue Growth ≈ 129.74%
ROIC ≈ -21%
.
Rule of 16 (ATC Version)
= 100 × { √[ (1+Revenue Growth Ratio) × (1+ROIC Ratio)
] - 1 }
= 100×(√((1+1.2974)×(1-0.21))-1)
= 34.7199317102%
> 16%