The World of Returns

This program focuses on the analysis of returns. First, the importance of returns in relation to value creation is illustrated. The concept of invested capital is then introduced and practical examples are used to show how to calculate the return on invested capital, and what its advantages and disadvantages are. We then show how to incorporate explicit returns assumptions in a DCF model, by using the value driver formula to calculate the terminal value. The relevance of returns in an M&A context is also discussed.

Key topics

• Returns analysis
  • Value creation: what it is and what its drivers are
  • The concept of invested capital
• Return on invested capital (ROIC)
  • Relationship between ROIC and WACC
  • Relationship between ROIC and ROE
  • Relationship between ROIC and growth
  • Using ROIC in DCF valuation
• Value driver terminal value approach
• Concept of fading returns
• Impact of returns on M&A analysis