Growth Measure

Question 1

Earning Per Share Growth

Answer 1

Rentention Ratio X ROE

Retention Ratio = % of net income retained by the company = 1 – Payout ratio

Return on Equity = Net Income/ Book Value of Equity

Question 2

Equity reinvestment Rate

Answer 2

(Net Cap Ex + Change in non-cash WC – Change in Debt)/ (Net Income)

Question 3

Non-cash ROE

Answer 3

Net Income from non-cash assets/(Book value of equity – Cash)

Question 4

Net Income from non-cash assets growth

Answer 4

Equity Reinvestment Rate X Non-Cash ROE

Equity reinvestment Rate = (Net Cap Ex + Change in non-cash WC – Change in Debt)/ (Net Income)

Non-cash ROE = Net Income from non-cash assets/ (Book value of equity – Cash)

Question 5

Operating Income growth

Answer 5

Reinvestment rate x ROIC

Reinvestment Rate = (Net Cap Ex + Change in non-cash WC)/ EBIT(1-T)

Return on Capital or ROIC = EBIT(1-T)/ (Book value of equity + Book value of debt – Cash)

Question 6

Operating Income Growth when Return on Capital is Changing

Answer 6

ROC t+1 * Reinvestment rate +(ROC t+1 – ROCt) /ROCt

Answer 7

(Capital expenditure −Depreciation +Δ Noncash WC)
/[EBIT(1 −Tax rate)]