DCF: long-term growth rate calculation

Calculate long-term growth rate

Step 1: Calculate Return on capital

  • Debt+equity

Return on capital = NOPAT/ (Debt+equity)


  1. Calculate NOPAT
-Cost of goods sold
=Gross profit
-Selling, general & administration
-Estimated depreciation
-Taxes @ 35%
+Estimated depreciation
=Cash flow from operations


  1. Debt are long-term obligations (listed on Balance sheet)


Step 2: Calculate Reinvestment rate

  • Change in net fixed assets
  • +Change in net working capital
  • =Net investment

 Reinvestment rate=Net investment/NOPAT


Step 3: Calculate long-term growth rate

g=Return on capital*reinvestment rate


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