value-to-salesratioof2.10whileearningareturnoncapital
of 15.63%. By the same token, L’Oreal and Wella look
overvalued,sincetheytradeatEV/EBITDAmultiplesthatare
higherthantheaveragewhilegeneratingreturnson capital
that are lower than the sector average.
The link between EV/capital and return on capital is
confirmed in Figure 9.7, with a scatter plot ofthe former
againstthelatter.Beiersdorfhasthehighestafter-taxreturn
oncapital(31.17%)andthehighestEV/capital(8.96),ratio,
whereasJacquesBogarthasthelowestEV/capitalratio(0.93)
andreturnoncapital(2.19%).Inthismatrix,theundervalued
firms (like Sarantis) willfall toward the lower right-hand
quadrant,whereastheovervaluedfirmswillbeintheupper
left-hand quadrant.
FIGURE 9.7 Enterprise Value/Capital versus Return on
Capital—European Cosmetics Firms