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?
Stacey Warren - Expert brainly.com
Hey! We 've verified this expert answer for you, click below to unlock the details :)
At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis praesentium voluptatum deleniti atque corrupti quos dolores et quas molestias excepturi sint occaecati cupiditate non provident, similique sunt in culpa qui officia deserunt mollitia animi, id est laborum et dolorum fuga.
Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere possimus, omnis voluptas assumenda est, omnis dolor repellendus.
Itaque earum rerum hic tenetur a sapiente delectus, ut aut reiciendis voluptatibus maiores alias consequatur aut perferendis doloribus asperiores repellat.
I got my questions answered at brainly.com in under 10 minutes. Go to brainly.com now for free help!
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....
ROC is used to calculate the growth for EBIT while ROE*Retention ratio is used for net profit.
it was a typo in one of his valuations. ROE should be used
Not the answer you are looking for? Search for more explanations.
Is this one of my spreadsheets? If so, I need to fix it...
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?