Dividingthis numberby thenet income gives us a much
broader measure of the equity reinvestment rate:
Unliketheretentionratio,thisnumbercanbewellinexcess
of100%becausefirmscanraisenewequity.Theexpected
growth in net income can then be written as:
ILLUSTRATION4.4:Growthin NetIncome: ExxonMobil
and Toyota
Toestimategrowthinnetincomebasedonfundamentals,we
lookatExxonMobil,theworld’slargestoilcompany,andat
Toyota,theJapaneseautomaker.Inthefollowingtable, we
firstestimatethecomponentsofequityreinvestmentanduse
themtoestimatethereinvestmentrateforeachofthefirms.
Wealsopresentthereturnonequityandtheexpectedgrowth
rate in net income at each of these firms.