Published by:
Harvard Business Publishing
Length: 10 pages
Topics:
Profitability analysis; Valuation
Share a link:
https://casecent.re/p/47850
Write a review
|
No reviews for this item
This product has not been used yet
Abstract
Examination of the interaction among inflation, capital costs, profitability, growth, and the market value of a company''s common stock can determine whether growth adds value for a company''s shareholders. Analysis of the expected excess returns, figured on a net present value basis, of Tandy Corp., Xerox, and National Steel illustrates how the gap between market and book value of common stock can widen and illustrates that growth will add value if ROE is expected to exceed the cost of equity capital. But inadequate profitability coupled with the need to finance inflation-induced sales growth can be disastrous for the company''s valuation.
About
Abstract
Examination of the interaction among inflation, capital costs, profitability, growth, and the market value of a company''s common stock can determine whether growth adds value for a company''s shareholders. Analysis of the expected excess returns, figured on a net present value basis, of Tandy Corp., Xerox, and National Steel illustrates how the gap between market and book value of common stock can widen and illustrates that growth will add value if ROE is expected to exceed the cost of equity capital. But inadequate profitability coupled with the need to finance inflation-induced sales growth can be disastrous for the company''s valuation.