Finally,wecomputetheexpectedgrowthratebymultiplying
the after-tax return on capital by the reinvestment rate:
If Titan Cement can maintain the return on capital and
reinvestmentrate thatithad lastyear,it wouldbe ableto
grow at 11.99% a year. With similar assumptions, the
earnings at SAP can grow 11.44% a year.
ILLUSTRATION 4.8: Current, Historical, and Industry
Averages
Thereinvestmentrateisa volatilenumberand oftenshifts
significantly from year to year. Consider Titan Cement’s
reinvestmentrateoverfiveyears(moneyamountsinmillions
of euros):
The reinvestmentrate over the past five years has ranged
from 17.48in 2000 to 72.01% in 2001.Wecomputed the
averagereinvestmentrateoverthefiveyearsbydividingthe
total reinvestmentover thefiveyears bythetotal after-tax
operating income over the five years.
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