In this session we continued our discussion of growth by first looking at the limitations of analyst estimates of growth and then examining the fundamentals that drive growth. Starting with a very simple algebraic proof that growth in earnings has to come either from new investments or improved efficiency, we looked at how best to estimate growth in three measures of earnings: earnings per share, net income and operating income. With each measure of earnings, the estimation of growth boiled down to answering two questions: (1) How much is this company reinvesting to generating for future growth? (2) How well is it reinvesting? (3) How much growth is added or lost by changes in returns on existing investments? In the next session, we will continue this discussion after the quiz.
Start of the class test: http://www.stern.nyu.edu/~adamodar/pd…
Post class test: http://www.stern.nyu.edu/~adamodar/pd…
Post class test solution: http://www.stern.nyu.edu/~adamodar/pd…
Aswath Damodaran: Historical, Analyst & Fundamental growth
See the full slides below.
