If a company performs perfectly in line with expectations, how will its TRS react in theory? How will its TRS react in practice? Why?
Answer to relevant QuestionsWhy is the old way of decomposing TRS (into changes in earnings, changes in P/E, and dividend yield) not the best way to understand a company’s performance? Explain the difference between ROICs excluding and ROICs including goodwill for U.S. companies: what does this difference imply and why has it increased so much over the past decade? Discuss why the ranking of industries by growth varies more over time than their ranking by ROIC. Using the methodology outlined in Exhibit 6.16, determine equity cash flow for year 1. Use the growing-perpetuity formula (based on equity cash flow) to compute BrandCo’s equity value. Assume the cost of equity is 12 ...Using the data presented in Question 1, decompose ROIC into operating margin and capital turnover for each company. Which ratio is the key determinant of ROIC: operating margin or capital turnover?
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