Corporate Value Creation: An Operations Framework for Nonfinancial Managers

APPENDIX C

Growth Models

INTRODUCTION

In this appendix, general expressions for estimating growth rates are presented.

• Compound annual growth (CAGR) rate model
• General model for estimating CFaIAg, the growth rate of Cash Flow after Investing Activities (CFaIA), and NIg, the growth rate of Net Income (NI), from the Investment Rate (IR) and Net Income Return on Capital Employed (NiROCE)

GENERAL COMPOUND ANNUAL GROWTH RATE MODEL

Let V_Beg and V_End represent the beginning and ending values of a series of numbers that develop over n periods. Then V_End can be expressed in terms of V_Beg and n by Equation [C-1].

where: CAGR is the compound annual growth rate¹

Taking logarithms of both sides of Equation [C-1],

Rearranging:

Multiplying both sides of [C-3] by n⁻¹

Since n⁻¹ (n) = 1 and , Equation ...