The essence of long-term compounding
Prerequisite:
P/E (Intrinsic) is proportional to ROIC.
Then,
Ideal logical Intrinsic Value Growth (%)
= 100 × [ (1+Gni)²/(1+Gic) - 1 ]
Gni
= Net Income Growth Ratio
Gic
= Invested Capital Growth Ratio
Interesting, thank you!
The PERFECT POSITIVITY SIGNS:
i.
Gnp > Ggp > Grevenue > Gcos > Gic > Gasset > WACC
ii.
GPA > ROIIC > ROIC > ROA > WACC
iii.
(1 + Ggp_ratio) ÷ (1 + Gasset_ratio) ≥ 1
iv.
(1 + Gnp_ratio) ÷ (1 + Gic_ratio) ≥ 1
v.
OPTIONAL, NOT NECESSARY.
The RAREST PERFECT POSITIVITY SIGNS:
Gnp > Ggp > Grevenue > GPA > ROIIC > ROIC > ROA > Gcos > Gic > Gasset > WACC
vi.
Notes:
The numerator of ROIIC is Incremented Net Profit, NPn - NPn-₁.
The denominator of ROIIC is Incremented Invested Capital, ICn - ICn-₁.
The numerators of ROIC and ROA are Net Profit.
Gnp
= Net Profit Growth
Ggp
= Gross Profit Growth
Grevenue
= Revenue Growth
Gcos
= Cost of Sales Growth
= Invested Capital Growth
Gasset
= Total Asset Growth
Wacc
= Weighted Average Cost Of Capital
Thanks for this one, great explanations. Always good to review these vital components.
Thanks, glad you liked it!
Prerequisite:
P/E (Intrinsic) is proportional to ROIC.
Then,
Ideal logical Intrinsic Value Growth (%)
= 100 × [ (1+Gni)²/(1+Gic) - 1 ]
Gni
= Net Income Growth Ratio
Gic
= Invested Capital Growth Ratio
Interesting, thank you!
The PERFECT POSITIVITY SIGNS:
i.
Gnp > Ggp > Grevenue > Gcos > Gic > Gasset > WACC
ii.
GPA > ROIIC > ROIC > ROA > WACC
iii.
(1 + Ggp_ratio) ÷ (1 + Gasset_ratio) ≥ 1
iv.
(1 + Gnp_ratio) ÷ (1 + Gic_ratio) ≥ 1
v.
OPTIONAL, NOT NECESSARY.
The RAREST PERFECT POSITIVITY SIGNS:
Gnp > Ggp > Grevenue > GPA > ROIIC > ROIC > ROA > Gcos > Gic > Gasset > WACC
vi.
Notes:
The numerator of ROIIC is Incremented Net Profit, NPn - NPn-₁.
The denominator of ROIIC is Incremented Invested Capital, ICn - ICn-₁.
The numerators of ROIC and ROA are Net Profit.
Gnp
= Net Profit Growth
Ggp
= Gross Profit Growth
Grevenue
= Revenue Growth
Gcos
= Cost of Sales Growth
Gic
= Invested Capital Growth
Gasset
= Total Asset Growth
Wacc
= Weighted Average Cost Of Capital
Thanks for this one, great explanations. Always good to review these vital components.
Thanks, glad you liked it!