Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Coca-Cola Cott

Return on capital (after-tax) 20.84% 11.20%

Thebenefits of brand name areclearlyvisible. Coca-Cola
generatesmorerevenuesandissubstantiallymoreprofitable
than Cott.

TovalueCoca-Cola’sbrandname,wefirstusetheoperating
marginapproach,wherewechangeCoke’safter-taxoperating
margin(15.57%)toCott’safter-taxmargin(5.28%),holding
revenuesconstantat$21,962million,thesales-to-capitalratio
at Coke’s current level (1.34), and the cost of capital at
Coca-Cola’s current cost of capital (7.65%). The resulting
values are shown in the following table:

Value of Coca-Cola

With Current

Margin

With Cott’s

Margin

Current tax rate 40% 40%

Current revenues $21,962 million

$21,962

million

High-Growth Period

Length of high-growth

period (n)

10 years 10 years

Reinvestment rate 50% 50%

Operating margin

(after-tax)

15.57% 5.28%

Sales/capital (turnover

ratio)

1.34 1.34