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Growth, CapEx, IR, & Diminishing Marginal Utility

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This is not investment advice, there is no implication of any guarantee. All investment is risky and you should take advice from actual advisors. EDUCATION ONLY.

Definition

Growth

Growth is the annual growth rate of a firm’s free cash flows.

Diminishing Marginal Utility (Diminishing Returns)

The rate at which a firm’s efficiency diminishes as it grows. Every subsequent dollar of investment produces less return. It’s harder to invest $1,000,000 than $10,000. It’s harder to find a strong investment for $10,000 than it is $500.

Takeaways

I’ve been going through the book Valuation and I’ve only made it to chapter 3. The book teaches in generalities but assumes you know the basics. I do not. So I take each piece and need to research what it is actually saying, then code it, to fully understand it. This must be what it’s like for most people when I talk about marketing.

Formulae

Growth

Investment Rate

Net Investment

Capital Expenditures (CapEx)

Python Code

Growth, Net Investment, & Investment Rate

!pip install yfinance
import numpy as np
import pandas as pd
import yfinance as yf

counter = 0


def Growth(ticker, taxRate):

  grow = pd.DataFrame(np.array([[ticker, 0, 0, 0, 0, 0, 0, 0, 0, 0, 0, 0]]),
                   columns=['Ticker', 'STDebt', 'LTDebt', 'shareholderEquity', 'CashEq', 'investedCapital', 'PPE', 'NOPAT', 'ROIC', 'investmentRate', 'netInvestment', 'growth'])
  
  stocks = yf.Ticker(ticker)

  stock_df = pd.DataFrame(stocks.financials)
  stock_balance = pd.DataFrame(stocks.balance_sheet)

  grow.loc[counter]['Ticker'] = ticker
  grow.loc[counter]['PPE'] = stock_balance.loc['Property Plant Equipment'][0]
  grow.loc[counter]['NOPAT'] = stock_df.loc['Operating Income'][0] * (1-taxRate)
  grow.loc[counter]['STDebt'] = stock_balance.loc['Short Long Term Debt'][0]
  grow.loc[counter]['LTDebt'] = stock_balance.loc['Long Term Debt'][0]
  grow.loc[counter]['shareholderEquity'] = stock_balance.loc['Total Stockholder Equity'][0]
  grow.loc[counter]['CashEq'] = stock_balance.loc['Cash'][0]
  grow.loc[counter]['investedCapital'] = grow.loc[counter]['STDebt'] + grow.loc[counter]['LTDebt'] + grow.loc[counter]['shareholderEquity']
  grow.loc[counter]['ROIC'] = float(grow.loc[counter]['NOPAT']) / float(grow.loc[counter]['investedCapital'])
  grow.loc[counter]['netInvestment'] = float(stock_balance.loc['Property Plant Equipment']['2021-09-25']) - float(stock_balance.loc['Property Plant Equipment']['2020-09-26'])
  grow.loc[counter]['investmentRate'] = float(grow.loc[counter]['netInvestment']) / float(grow.loc[counter]['NOPAT'])
  grow.loc[counter]['growth'] = float(grow.loc[counter]['ROIC']) * float(grow.loc[counter]['investmentRate'])
  return grow

Growth('AAPL', .134)