The Primer of Everything in Investing That Every Investor Must Etch In Heart : Absolute Total Compound Formula
The Primer of Everything in Investing That Every Investor Must Etch In Heart : Absolute Total Compound Formula
.
2.1。
Absolute Total Compound @ nth year (Unit: $) : Dividends are Not Reinvested
=
Number of shares × Stock Entry Price
×
[
Absolute Modal Compound:
( Pexit÷Eexit ) ÷ ( Pentry÷Eentry )
×
{ ( 1+Gnp ) ÷ ( 1-SBB ) }ⁿ
+
Absolute Accrued Dividend Received Compound:
( DPSexit÷Pexit ) ÷ ( DPSentry÷Pentry ) × DYentry × ( 1-Td ) × ( 1+Gd ) ÷ ( 1 - SBB)
×
( 1 - { ( 1+Gd )÷( 1-SBB )} ⁿ ) ÷ ( 1 - ( 1+Gd )÷( 1 - SBB ) )
]
OR
2.2。
Absolute Total Compound Multi-bagger Multiple @ nth year (Unit: Bagger) : Dividends are Not Reinvested
=
[
Absolute Modal Compound:
( Pexit÷Eexit ) ÷ ( Pentry÷Eentry )
×
{ ( 1+Gnp ) ÷ ( 1-SBB ) }ⁿ
+
Absolute Accrued Dividend Received Compound:
( DYentry × ( 1-Td ) × ( 1+Gd ) ÷ ( 1 - SBB )
×
( 1 - { ( 1+Gd ) ÷ (1 - SBB) }ⁿ ) ÷ ( 1 - ( 1+Gd ) ÷ ( 1 - SBB ) )
]
2.3。
If All DIVIDENDS are FULLY REINVESTED at intrinsic value & Gd = Gnp.
Absolute Total Compound @ nth year (Unit: Bagger)
{with dividend reinvestment at intrinsic value: All Dividends are Fully Reinvested & Gd = Gnp}
=
( Pexit÷Eexit ) ÷ ( Pentry÷Eentry )
×
[
( 1 + Gnp ) × ( 1 + DYentry × [1-Td] ) ÷ ( 1-SBB )
]ⁿ
2.4。
If All DIVIDENDS are FULLY REINVESTED at Intrinsic Value and Gd ≠ Gnp.
Absolute Total Compound @ nth year (Unit: Bagger)
{with dividend reinvestment at intrinsic value : All Dividends are Fully Reinvested & Gd ≠ Gnp}
=
( Pexit÷Eexit ) ÷ ( Pentry÷Eentry )
×
[
( 1 + Gnp ) × ( 1 + DYentry × [ 1 - Td ] × ( 1 + Gd ) ÷ ( 1 + Gnp ) ) ÷ ( 1 - SBB )
]ⁿ
Note:
SBB, Gnp, DY, Gd, Td are in ratio format.
SBB = Share Buy Back Ratio
Gnp = Net Profit Growth Ratio
DY = Dividend Yield Ratio
Gd = Dividend Growth Ratio
Td = Tax on Dividend Ratio
DPS = Dividend Per Share
.
Gnp = ROIC × (1 - DPS/EPS) × Quality Factor
.
Empirical data shows that some stocks have Gnp > ROIC and some Gnp < ROIC × (1 - DPS/EPS).
.
That are due to the third variable, Quality Factor.
.
What can we fill in the Conversion Quality Factor?
.
I can only think of one :
Conversion Quality Factor = Earnings Quality
.
Replacing :
We have
Gnp = ROIC × (1 - DPS/EPS) × Earnings Quality
.
Since Earnings Quality = FCF÷EPS, and CROIC = FCF÷IC = ROIC × FCF÷EPS,
Replacing:
Gnp = ROIC × (1 - DPS/EPS) × Earnings Quality
Gnp = (ROIC × Earnings Quality) × (1 - DPS/EPS)
Gnp = CROIC × (1 - DPS/EPS)