brand - Value/Sales Ratio An Example n Consider for example...

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Aswath Damodaran 161 Value/Sales Ratio: An Example n Consider, for example, the Value/Sales ratio of Coca Cola. The company had the following characteristics: After-tax Operating Margin =18.56% Sales/BV of Capital = 1.67 Return on Capital = 1.67* 18.56% = 31.02% Reinvestment Rate= 65.00% in high growth; 20% in stable growth; Expected Growth = 31.02% * 0.65 =20.16% (Stable Growth Rate=6%) Length of High Growth Period = 10 years Cost of Equity =12.33% E/(D+E) = 97.65% After-tax Cost of Debt = 4.16% D/(D+E) 2.35% Cost of Capital= 12.33% (.9765)+4.16% (.0235) = 12.13% Value of Firm 0 Sales 0 =.1856* (1-.65)(1.2016)* 1 - (1.2016) 10 (1.1213) 10 .1213-.2016 + (1-.20)(1.2016) 10 * (1.06) (.1213-.06)(1.1213) 10 = 6.10
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Aswath Damodaran 162 Value Sales Ratios and Operating Margins Coca Cola: The Operating Margin Effect 0 2 4 6 8 10 12 6% 8% 10% 12% 14% 16% 18% 20% Operating Margin Value/Sales Ratio 0 50 100 150 200 250 $ Value Value/Sales $ Value
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Aswath Damodaran 163 MSEL GDYS RET.TO MLG MHCO ZANY PSRC FINL ROSI FLWS LVC TWMC SPGLA SAH RUSH MDA DBRN GADZ WLSN CELL FNLY JILL IBI CLWY ANIC VOXX CHRS PSS BKE Z MTMC HMY PBY URBN ROST AEOS PGDA CC BEBE ITN CAO GBIZ DAP RUS
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