Expected Return (Sustainable Growth)

What is the definition of Exp. Return (Sust Gwth)?

According to Mary Buffett's "Buffettology", the sustainable growth rate can be calculated by:

  • Multiplying the average 10 year rate of return on equity and average retention ratio (1 - average payout ratio) to calculate the implied sustainable growth rate.
  • This rate can then be used to calculate the book value per share in year 10.
  • This in turn determines the 10 year EPS by multiplying the average return on equity by the projected book value per share.
  • To estimate the future price, you would then multiply the earnings by the average price-earnings ratio (plus any dividends) which then (theoretically!) produces the expected return based on the current price.

Stockopedia explains Exp. Return (Sust Gwth)...

For more details on this approach, read our synopsis of Buffetology

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