3 So how many years does it take to double one time if we have two doubles in

# 3 so how many years does it take to double one time

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3. So how many years does it take to double one time if we have two doubles in five years? Divide 5 by 2. That’s a double every 2.5 years. 4. Now we use the Rule of 72, which says if you know the number of years it takes to double once , divide the years into 72 and you get the growth rate. So now divide 2.5 into 72 and you get 29 percent for the EPS growth rate. I always try to do the dividing in my head, so I just ask myself what 2.5 goes into easily that’s close to 72. Answer: 75 (25 goes into 75 three times). So 2.5 goes thirty times. And it’s not 75, it’s 72 and I rounded up for the 2.5, so I’m going to ballpark this at 26 percent. Close enough. So let’s review our four growth numbers. BVPS is 15 percent, EPS is 18 percent, Sales is 12 percent, and Cash is 26 percent. And 15, 18, 12, and 26 are all good. All are past 10 percent and going up. Actually, let’s see if they are. Let’s put the numbers on a graph using Excel Charts. (If you want to see how to do this, go to PaybackTimeBook.com and look at more exercises in the online addendum for this chapter.) Cash is starting to decline after a fast run-up, but at a 26 percent growth rate, that’s to be expected. And with the recession that started in 2008, I’d expect to see these numbers headed south.
Now check the debt. Especially considering all the problems businesses are having getting credit these days, let’s be sure we’re buying companies that have their debt covered. That means they can pay it off in three years or less from earnings. Go to Company Report on the RL Main Menu and you’ll see RL’s Interim Trailing Twelve Months of Earnings: RL produced \$465 million in the last twelve months. Now look up the current debt. To get that number go to the Balance Sheet and click Interim so you get the most recent quarter’s Balance Sheet. Balance Sheet numbers are not like Income and Cash numbers.

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