anonymous
  • anonymous
Can anyone or Aswath please tell me why he/you use ROC in the fundamental determinant calculation of growth in the Free Cash Flow to Equity spreadsheet model and not ROE*Retention Ratio?
Finance
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chestercat
  • chestercat
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anonymous
  • anonymous
I do not know which spreadsheet you're refering to, but when it comes to the FCFE computation, growth is definitely a product of the retention rate and the ROE exactly as you hint. Anyway, it might be some kind of confusion in the paper....
anonymous
  • anonymous
ROC is used to calculate the growth for EBIT while ROE*Retention ratio is used for net profit.
anonymous
  • anonymous
it was a typo in one of his valuations. ROE should be used

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anonymous
  • anonymous
Is this one of my spreadsheets? If so, I need to fix it...
anonymous
  • anonymous
Yes, its in the FCFE 2-stage model. But if you read a paper by you titled "Fundamental Determinants of Growth". You have the calculation of growth in EPS= retention ratio(ROC+D/E(ROC-interest rate(1-tax rate). Which makes sense becuase it basically is capturing the possible change in ROE due to leverage correct?

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