Core Value Drivers

1. Dividends reflect disbursement of funds, rather than firm’s performance

2. lots of stuff is pushed into ∞

3. its easier to reason about future market size, profitability etc.

EQ t = EQ t-1 + NI t - Div t

1. RI t = (ROE t - r) * EQ t-1

2. RI t = NI t - r * EQ t-1

ROE > r

-> Return on equity must exceed expected return r

(no sustainable competive advantage: ROE -> r)

1. Profitability (ROE)

2. Risk / cost of equity (r)

3. Investmentgrowth (g) -> growth RI

Turnover = Sales t / EQ t-1

Turnover^-1 = Capital Intensity

CapInt t = Equity t-1 / Sales t