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Financial Analysis of Corporations

The document compares the valuations of two companies - an Undervalued Corp and a Reinvestment Corp - over a 10 year period. Undervalued Corp retains 50% of earnings, has a 10% ROIC and 10x exit multiple, resulting in a valuation of $1626 and 5% CAGR. Reinvestment Corp retains 100% of earnings, has a 25% ROIC and 36x exit multiple, resulting in a valuation of $9313 and 10% CAGR. So the Reinvestment Corp, which fully retains its earnings, achieves a higher valuation and growth rate.

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Rishab Wahal
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112 views5 pages

Financial Analysis of Corporations

The document compares the valuations of two companies - an Undervalued Corp and a Reinvestment Corp - over a 10 year period. Undervalued Corp retains 50% of earnings, has a 10% ROIC and 10x exit multiple, resulting in a valuation of $1626 and 5% CAGR. Reinvestment Corp retains 100% of earnings, has a 25% ROIC and 36x exit multiple, resulting in a valuation of $9313 and 10% CAGR. So the Reinvestment Corp, which fully retains its earnings, achieves a higher valuation and growth rate.

Uploaded by

Rishab Wahal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Undervalued Corp.

Current Earnings
100
Power ($)
Earnings Retained
50%
(%)
ROIC (%) 10%
Multiple 10
Valuation 1000

Year Net Income Earnings Power


1 5.0 105
2 5.3 110
3 5.5 116
4 5.8 122
5 6.1 128
6 6.4 134
7 6.7 141
8 7.0 148
9 7.1 155
10 7.7 163

Exit Multiple 15
Year 10 Valuation 2439

CAGR 9.3%
Multiple on
Original 2.4
Investment
Reinvestment Corp

Current Earnings Power ($) 100

Earnings Retained 100%

ROIC 25%
Multiple 20
Valuation 2000

Year Net Income Earnings Power


1 25 125
2 31 156
3 39 195
4 49 244
5 61 305
6 76 381
7 95 477
8 119 596
9 149 745
10 186 931

13970

21.5%

7.0
Undervalued Corp.
Current Earnings
100
Power ($)
Earnings
50%
Retained (%)
ROIC (%) 10%
Multiple 10
Valuation 1000

Year Net Income Earnings Power


1 5.0 105
2 5.3 110
3 5.5 116
4 5.8 122
5 6.1 128
6 6.4 134
7 6.7 141
8 7.0 148
9 7.1 155
10 7.7 163

Exit Multiple 10
Year 10 Valuation 1626

CAGR 5.0%
Multiple on
Original 1.6
Investment
Reinvestment Corp
Current Earnings
100
Power ($)

Earnings Retained 100%

ROIC 25%
Multiple 36
Valuation 3600

Year Net Income Earnings Power


1 25 125
2 31 156
3 39 195
4 49 244
5 61 305
6 76 381
7 95 477
8 119 596
9 149 745
10 186 931

9313

10.0%

2.6
Walmart Inc.

Bn $ 2006 2016 Change


Net Income 11.2 14.7 3.5

Equity 53.2 80.5

Debt & Capital Lease 35 46.7

Less Goodwill 12.2 16.7

Total Capital Invested 76 110.5 34.5

Cumulative 10 year Earnings 147.9


Incremental Capital Invested 34.5
Cumulative 10yr dividends 49.9
Cumulative 10yr buybacks 60.1

Reinvestment Rate (B13/B12) 23%


Return on Incremental Capital
Investments (D4/D9) 10%

Value Compounding Rate of


2.4%
Company

10yr CAGR for Walmart Stock 4.00%

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