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Implied Return on Capital (ROC) & Return on Equity (ROE) Terminal Value
  • Implied Return on Capital (ROC) & Return on Equity (ROE) Terminal Value
Originally published: 21/06/2016 13:26
Last version published: 28/07/2016 10:54
Publication number: ELQ-44449-2
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Implied Return on Capital (ROC) & Return on Equity (ROE) Terminal Value

Compute the ROC or ROE implied in your terminal value calculation

Prof. Aswath Damodaranby Prof. Aswath Damodaran
Professor at NYU Stern School of BusinessFollow 1,092
NYU Stern School of Businesswith NYU Stern School of Business
An Education in PossibleFollow 62
8 reviews2,069 views|Start the discussion!|Bookmark download for free
financeroereturn on equityrocterminal valuereturn on capitalreinvestment
Description
With the following inputs, compute your reinvestment rate and return on capital:
- after-tax operating earnings (EBIT (1-t)) in your terminal year
- free cashflow to firm in your terminal year
- perpetual growth rate
- cost of capital in perpetuity

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School

This Best Practice includes
1 Excel Model File, 1 ReadMe

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Further information

The objective of this model is to get the following outputs:

- reinvestment rate in perpetuity
- return on capital (equity) in perpetuity

Bonus
- your reinvestment rate if your return on capital = cost of capital


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