Question

Question on Reinvestment Ratio

Answer 1

How do i find the reinvestment rate if the company has never given any dividend payout, so i cant use the formula of Reinvestment rate = 1 - Dividend payout, how do i come with reinvestment rate?

OR should i use the backward process to find reinvestment rate, means i give set my own growth of 5% (i predict my own growth) and get the ROC of (lets say) 6%, so reinvestment rate = Growth / ROC = 5/6 = 83% reinvestment rate.


If i do not want to predict my own growth, is there any way to find reinvestment rate?

Answer 2

I think the method to find reinvestment rate is to take the total (Net Capex + Change in Non-cash working capital) / EBIT (1-T). Am i right?