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Nvidia
Sustainable Growth-43.3%
Negative estimated growth
ROIC115.1%
Reinvestment Rate-37.6%
Reinvestment-$72.8B
Invested Capital$168.0B
Reinvestment Growth Model
For informational and educational purposes only • Not investment advice.
Compare sustainable growth across companies
Apple
Sustainable Growth-17.1%
Negative estimated growth
ROIC99.6%
Reinvestment Rate-17.2%
Reinvestment-$22.2B
Invested Capital$129.5B
Alphabet
Sustainable Growth-6.1%
Negative estimated growth
ROIC48.0%
Reinvestment Rate-12.8%
Reinvestment-$31.3B
Invested Capital$510.8B
Microsoft
Sustainable Growth19.8%
High estimated growth potential
ROIC32.2%
Reinvestment Rate61.3%
Reinvestment$83.5B
Invested Capital$422.4B
What is the Reinvestment Growth Model?
The Reinvestment Growth Model estimates the long-term growth that a company may be able to sustain based on its Return on Invested Capital (ROIC) and the proportion of after-tax operating profit that it reinvests in the business.
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)
Invested Capital
Return on Invested Capital (ROIC)
Reinvestment
Reinvestment Rate
Sustainable Growth
How the Reinvestment Growth Model Works
The model calculates NOPAT and Invested Capital to estimate ROIC. It then measures the company's Reinvestment Rate and multiplies the two figures to estimate Sustainable Growth.
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
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Estimate
Invested Capital
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Calculate
ROIC
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Calculate
Reinvestment Rate
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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.
• 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)
Net Operating Profit After Tax (NOPAT) measures the operating profit generated by the business after taxes but before financing costs.
The model converts EBIT into Net Operating Profit After Tax (NOPAT). NOPAT measures after-tax operating profit before financing costs and is used to calculate both Return on Invested Capital (ROIC) and the Reinvestment Rate.
Step 2 — Estimate Invested Capital
Net Debt = Total Debt − Cash
Net Debt measures the company's debt after deducting cash and cash equivalents.
Invested Capital = Shareholders' Equity + Net Debt
Invested Capital represents the capital employed in the operating business.
Invested Capital represents the capital supplied by shareholders and lenders that is employed in the operating business. The model estimates it as Shareholders' Equity plus Net Debt.
Step 3 — Calculate Return on Invested Capital (ROIC)
ROIC = NOPAT / Invested Capital
Return on Invested Capital (ROIC) measures the after-tax operating profit generated for each dollar invested in the operating business.
Return on Invested Capital (ROIC) measures how efficiently a company generates after-tax operating profit from the capital employed in its business. A higher ROIC indicates that the company is generating more operating profit from each dollar of invested capital.
Step 4 — Calculate Reinvestment
Reinvestment = Capital Expenditures − Depreciation & Amortization + Increase in Working Capital
Reinvestment measures the capital invested back into the operating business.
Reinvestment Rate = Reinvestment / NOPAT
The Reinvestment Rate measures the proportion of after-tax operating profit that is reinvested into the business.
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.
Step 5 — Estimate Sustainable Growth
Sustainable Growth = ROIC × Reinvestment Rate
Sustainable Growth combines capital efficiency and reinvestment to estimate the long-term growth supported by the business.
The final step multiplies Return on Invested Capital (ROIC) by the Reinvestment Rate to estimate the growth supported by the company's current capital efficiency and reinvestment policy. The result is a long-term sustainable growth estimate rather than an intrinsic value or a guaranteed forecast.