Cash Flow & Capital Allocation
Reinvestment Rate
Estimates what percentage of NOPAT is absorbed by operating reinvestment: capex net of depreciation and amortization plus growth in operating working capital. This is the metric intended to pair with ROIC when looking for compounding potential.
Reinvestment Rate
reinvestmentRate · Cash Flow & Capital Allocation
Variants: reinvestmentRateChangePct1Y / reinvestmentRateChangePct3Y / reinvestmentRateChangePct5Y
- Definition
- Estimates what percentage of NOPAT is absorbed by operating reinvestment: capex net of depreciation and amortization plus growth in operating working capital. This is the metric intended to pair with ROIC when looking for compounding potential.
- Calculation
- ((abs(capex) - depreciation and amortization + change in operating working capital) / NOPAT) * 100. The 1Y/3Y/5Y changes are percentage differences. Operating working capital = receivables + inventory - payables. NOPAT = EBIT * (1 - tax expense / income before tax), falling back to EBIT when the tax rate is unavailable.
- Uses
- Key for spotting compounding: a business with high ROIC and a sustainable reinvestment rate can grow intrinsic value without relying only on multiple expansion. It can mislead in cyclical businesses, with one-off capex, volatile working capital, acquisitions or depressed NOPAT; cross-check FCF, margins, debt and organic growth.
