Lessons in Corporate Finance by Paul Asquith & Lawrence A. Weiss

Author:Paul Asquith & Lawrence A. Weiss
Language: eng
Format: epub
ISBN: 9781119537892
Publisher: Wiley
Published: 2019-03-26T00:00:00+00:00

The problem with this calculation, as we noted in Chapter 2, is that we are using the end-of-year value for net worth. To properly calculate ROE, we really should use Apple's start-of-year net worth, which was $47.8 billion. This gives us an ROE of 54.2%.18

So, Apple's ROE and sustainable growth rate in 2011 (with no dividends) is really 54.2%.

As shown in Table 11.3, between 2008 and 2011, Apple had a four-year average annual ROE of 41.2%. This is a very high ROE. It is also Apple's sustainable growth rate because Apple paid no dividends. At the same time, Apple's sales growth rate averaged 48.1% a year over the same four years, while the firm's assets grew at 46.7% a year. Thus, from the perspective of sustainable growth, Apple was in balance (refer to Chapter 9 for our previous discussion on sustainable growth rates and the importance of balance).

TABLE 11.3 Apple Inc., Selected Ratios, 2008–2011

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