WealsocomputedTitanCement’sreturnoncapitaleachyear
for the five years (in millions of euros):
Withthereturnin 2000 astheoutlier,thereturnoncapitalat
TitanCementhasaveragedabout20%intheyears 2002 to
2004.
Clearly,theestimatesofexpectedgrowtharea functionof
whatyouassumeaboutfutureinvestments.ForTitanCement,
ifyouassumethattheaveragereinvestmentrateoverthepast
fiveyearsandthecurrentreturnoncapitalarebettermeasures
for the future, your expected growth rate would be:
Webelievethatthisestimateisamuchmorereasonableone
given what we know about the firm and its growth potential.
Positive and Changing Return on Capital Scenario
The analysis in the previous subsection is based on the
assumptionthatthereturnoncapitalremainsstableovertime.
If the return on capital changes over time, the expected
growthrateforthefirmwillhaveasecondcomponent,which
willincreasethegrowthrateifthereturnoncapitalincreases
and decrease the growth rate if the return on capital decreases.