The P/E Ratio: A User's Manual
Actively Speaking Podcast
The Return on Invested Capital
The return on invested capital, or ROIC, is the amount of profit a company gets back from investing in its business. The Gordon growth model looks at two companies that both need to grow their earnings by 5%. To get another five cents in profit per share with a 20% ROIC, well, that means they need to invest 25 cents of their dollar in profit because 20% of 25 cents is five cents. That's still 10% minus 5% the required return minus the growth rate.
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