## Capex as a percentage of D&A

The Capex (Capital Expenditure) as a percentage of D&A (Depreciation and Amortization) formula calculates the ratio of capital expenditures incurred by a company relative to its depreciation and amortization expenses over a specific period.

This formula provides insight into how much of a company's capital spending is devoted to replacing or expanding its existing assets compared to the depreciation and amortization charges incurred for those assets. A ratio above 100% indicates that the company is investing more in capital assets than it is depreciating or amortizing, suggesting potential growth or maintenance of its asset base.

## Net Investments

Net investments, calculated as the difference between changes in fixed assets (FA), accounts receivable (AR), inventory (I), and accounts payable (AP), represent the net change in a company's investment activities over a specific period.

This formula captures the inflows and outflows of resources related to assets and liabilities, providing insight into the company's investment strategies and liquidity management.

## Reinvestment rate

The reinvestment rate measures the proportion of earnings that a company reinvests back into its business for growth and expansion purposes. It is calculated by dividing the net investments by the NOPAT.

The reinvestment rate provides insight into how efficiently a company allocates its earnings to fuel future growth and development, serving as a key metric for evaluating its investment strategies and potential for long-term value creation.

**Terminal Year Growth Rate**

The terminal year growth rate, used in terminal value calculations, estimates the rate (%) at which a company's free cash flows are expected to grow indefinitely beyond the forecast period. This growth rate is crucial in determining the terminal value of a company and is often a key input in discounted cash flow (DCF) analysis and other valuation methods.

Implied RONIC

Implied RONIC (Return on New Invested Capital) can be determined by the terminal growth rate by the reinvestment rate.

This approach to calculate implied RONIC essentially indicates how much growth a company can generate from each unit of reinvested capital in the terminal year, providing insight into the long-term efficiency and profitability of the company’s investments.

## Target Reinvestment Rate

The target reinvestment rate is a financial metric used to determine the percentage of earnings that a company should reinvest back into its operations to sustain growth and maximize shareholder value. It is calculated by dividing the terminal year growth rate (or sustainable growth rate) by the return on capital (ROE). Here, the return on capital is considered to be equal to the Weighted Average Cost of Capital (WACC).

The target reinvestment rate is a financial planning tool used to determine the proportion of a company's earnings that should be reinvested back into the business to sustain its growth. It helps in optimizing capital allocation decisions by providing guidance on how much of the earnings should be retained for future investments rather than distributed to shareholders as dividends.