RBD - Restaurant Brands

[h2so4]

Snoopy wrote
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Not sure you really need to go to the trouble of working out the return on the return. I use an ROE target of 15% minimum for new companies that I invest in. If say the cost of capital was 7%, I might equally say my target was 8% above the cost of capital. But what is the difference between that and a gross ROE target of 15%? I would say nothing.

Sauce responded
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Well it allows you to put a value on compounding growth.

Snoopy counteresponded
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Using gross figures like my 15% still allows you to do the compounding growth calculation. The only thing you have to remember is that when looking at the result after a few years is that if you use a 'gross return figure', there is an underlying profit in there which you would have got anyway by just investing in government bonds, roughly akin to that cost of capital. But I fail to see how moving the zero return point up to say 7% allows you to put a value on compounding growth. If you didn't do that you can still measure compounding growth equally well.

SNOOPY

SD

On a $1000 1year bond paying 7% how much can I pay today for my bond to earn 15%? Answer $930.43(intrinsic value)

$1000 1year bond @ 7% = $1070.(compound growth calculation)

$1070 discounted at %15 today = $930.43 (discounted cashflow valuation)

The discounted cash that I can take out of my bond during its remaining life is $930.43 if I hope to earn 15%.