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

This preview shows pages 1–4. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern