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Reinvestment Growth Model

For informational and educational purposes only • Not investment advice.

Apple

iPhone, services, devices

Estimated Sustainable Growth Rate

-17.1%

ROIC: 99.6%

Negative estimated growth

This model estimates the growth rate implied by the company's current ROIC and reinvestment rate.

Sustainable Growth Drivers

Sustainable growth combines capital efficiency with the proportion of operating profit reinvested into the business.

ROIC
99.6%
×
Reinvestment Rate
-17.2%
=
Sustainable Growth
-17.1%

Notes & Assumptions

⚠️ Estimated reinvestment is negative. The company may be investing less than depreciation or reducing working capital.

Key Reinvestment Metrics

What is the Reinvestment Growth Model?

The Reinvestment Growth Model estimates how fast a company may be able to grow based on how much operating profit it reinvests and the return generated on its invested capital.

Unlike an intrinsic valuation model, it does not estimate Fair Value per Share. Instead, it explains the relationship between capital efficiency, reinvestment and sustainable growth.

Reinvestment Growth Formulas

Sustainable Growth is determined by the return earned on Invested Capital and the proportion of NOPAT reinvested in the operating business.

Net Operating Profit After Tax (NOPAT)
NOPAT=EBIT×(1−T) \text{NOPAT} = \text{EBIT} \times (1-T)
Invested Capital
Invested Capital=Shareholders’ Equity+Net Debt \text{Invested Capital} = \text{Shareholders' Equity} + \text{Net Debt}
Return on Invested Capital (ROIC)
ROIC=NOPATInvested Capital \text{ROIC} = \frac{\text{NOPAT}} {\text{Invested Capital}}
Reinvestment
Reinvestment=Capital Expenditures−Depreciation & Amortization+ΔWorking Capital \text{Reinvestment} = \text{Capital Expenditures} - \text{Depreciation \& Amortization} + \Delta\text{Working Capital}
Reinvestment Rate
Reinvestment Rate=ReinvestmentNOPAT \text{Reinvestment Rate} = \frac{\text{Reinvestment}} {\text{NOPAT}}
Sustainable Growth
Sustainable Growth=ROIC×Reinvestment Rate \text{Sustainable Growth} = \text{ROIC} \times \text{Reinvestment Rate}

How the Reinvestment Growth Model Works

The Reinvestment Growth Model converts operating profit into after-tax operating earnings, measures the return generated on invested capital, and combines that return with the estimated Reinvestment Rate to estimate Sustainable Growth.

Calculate NOPAT
→
Estimate Invested Capital
→
Calculate ROIC
→
Calculate Reinvestment Rate
→
Estimate Sustainable Growth

Key Model Assumptions

• EBIT is used as the starting point for operating profitability. When available, trailing twelve-month (TTM) EBIT is used; otherwise, the latest annual EBIT is applied.
• Taxes are applied to estimate Net Operating Profit After Tax.
• Invested Capital is approximated as Shareholders' Equity plus Net Debt.
• Current ROIC is used as an approximation for the return generated on future reinvested capital.
• Reinvestment is estimated as Capital Expenditures minus Depreciation and Amortization, plus the Increase in Working Capital.
• The Reinvestment Rate is calculated by dividing estimated Reinvestment by NOPAT.
• Sustainable Growth is estimated as ROIC multiplied by the Reinvestment Rate.
• The model estimates long-term growth potential and does not calculate intrinsic or fair value.

Step 1 — Calculate After-Tax Operating Profit

NOPAT = EBIT × (1 − Tax Rate)
= $155.9B × (1 − 17.3%) = $128.9B

The model converts Apple's EBIT into Net Operating Profit After Tax (NOPAT). NOPAT measures after-tax operating profit before financing costs and is used to calculate both ROIC and the Reinvestment Rate. Under the current assumptions, NOPAT is $128.9B.

Step 2 — Estimate Invested Capital

Net Debt = Total Debt − Cash
Net Debt = $84.3B − $62.4B = $21.9B
Invested Capital = Shareholders' Equity + Net Debt
Invested Capital = $107.5B + $21.9B = $129.5B

Invested Capital represents the capital supplied by shareholders and lenders that is employed in the operating business. This model estimates it as Shareholders' Equity plus Net Debt. Under the current assumptions, Apple's Invested Capital is $129.5B.

Step 3 — Calculate Return on Invested Capital (ROIC)

ROIC = NOPAT / Invested Capital
= $128.9B / $129.5B = 99.6%

Return on Invested Capital measures how efficiently Apple generates after-tax operating profit from the capital employed in its business. Under the current assumptions, the company generates a ROIC of 99.6%.

Step 4 — Calculate Reinvestment

Reinvestment = Capital Expenditures − Depreciation & Amortization + Increase in Working Capital
Reinvestment = $10.0B − $13.1B + -$19.1B = -$22.2B
Reinvestment Rate = Reinvestment / NOPAT
Reinvestment Rate = -$22.2B / $128.9B = -17.2%

The model estimates the capital reinvested in the operating business using Capital Expenditures, Depreciation and Amortization, and changes in Working Capital. Dividing Reinvestment by NOPAT produces the Reinvestment Rate. Under the current assumptions, Apple's Reinvestment Rate is -17.2%.

Step 5 — Estimate Sustainable Growth

Sustainable Growth = ROIC × Reinvestment Rate
Sustainable Growth = 99.6% × -17.2% = -17.1%

The final step multiplies ROIC by the Reinvestment Rate to estimate the growth supported by the company's current capital efficiency and reinvestment policy. Under the current assumptions, Apple's Sustainable Growth Rate is -17.1%. This is an implied growth rate rather than an intrinsic value estimate or a guaranteed forecast.