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The reinvestment rate significantly affects a company's growth. When a company has a high reinvestment rate, it means that it is putting a large portion of its profits back into the business. This can lead to increased growth as the company can use these reinvested funds to invest in new projects, expand operations, or improve existing operations. However, if the reinvestment rate is too high, it could indicate that the company is not efficiently using its capital and could be over-investing in projects with low returns. Therefore, it's important for a company to find a balance in its reinvestment rate to ensure sustainable growth.
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Do you need to weigh up several investment projects or public companies to invest in? This spreadsheet compares the efficiency of capital use between companies based on assumptions of Return on Invested Capital (ROIC), reinvestment rate and valuation multiples. Then, net income and equity value forecasts are derived and returns are compared over the long term by the company. The sensitivity of returns to the core assumptions is also provided.
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Need help with which companies or projects to invest in? As a key driver of value in business, ROIC measures how well the company deploys its capital....
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