Why should Investor rely more on Return than Growth?

Why should Investor rely more on Return than Growth?

.

(1)

Growth is decided by the changes of only one entity:

Profit in P/L

.

(2)

Return (for example ROIC) is decided by the simultaneous changes of three entities :

Profit in P/L

Total Equity in B/S

Total Interest Bearing Debt in B/S

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Moreover, ROIC is a booster to Future Growth:

Expected Future Growth = ROIC × Reinvested Rate of Profit after dividend issuance

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By analogy:

ROIC is the Hen,

Egg is the Reinvested Rate of Profit after dividend issuance,

Expected Future Growth is the baby chick in the hatching.

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(3)

Can we unite them?

Yes, by making use of geometric mean:

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Growth_Return Multiple

= 100 × √(ROIC Ratio × G Ratio)

Or

Growth_Return Multiple

= 100 × { √[ (1+ROIC Ratio) × (1+G Ratio) ] - 1 }

.

(4)

Above is a basic intrinsic modelling knowledge and technique that we must acquire in stock evaluation.