Inthisillustration,weestimatethereinvestmentrate,return
on capital, and expected growth rate for Titan Cement, a
Greek cement company, and SAP, the German enterprise
softwarecompany.Webeginbypresentingtheinputsforthe
return on capital computation:
We use the effective tax rate for computing after-tax
operatingincomeandthebookvalueofdebtandequityfrom
the end of theprior year. ForSAP, we use theoperating
income and book value of equity, adjusted for the
capitalization of the research asset, as described in the
precedingchapter.Inbothcases,wenetcashholdingsfrom
bookcapitalandtheafter-taxreturnsoncapitalarecomputed
in the last column.
We follow up by estimating capital expenditures,
depreciation,andthechangeinnoncashworkingcapitalfrom
the most recent year: