43 lines
1.5 KiB
Plaintext
43 lines
1.5 KiB
Plaintext
The Four Drivers of Value • 105
|
||
Over this very long period, the nominal GDP growth in the United
|
||
States averaged just over 6 percent per year. If the investment projects
|
||
of a company are generally successful, the company will be able to
|
||
dependably grow its profits at a rate faster than this 6 percent (or so)
|
||
benchmark. The length of time it will be able to grow faster than this
|
||
benchmark will depend on various factors related to the competitive-
|
||
ness of the industry, the demand environment, and the investing skill
|
||
of its managers.
|
||
Seeing whether or not investments have been successful over time is
|
||
a simple matter of comparing OCP growth with nominal GDP . Let’s look at
|
||
a few actual examples. Here is a graph of my calculation of Walmart’s OCP
|
||
and OCP margin over the last 13 years:
|
||
2000 2005 2010
|
||
0.00%
|
||
0.50%
|
||
1.00%
|
||
1.50%
|
||
2.00%
|
||
2.50%
|
||
3.00%
|
||
3.50%
|
||
4.00%
|
||
4.50%
|
||
5.00%20,000
|
||
18,000
|
||
16,000
|
||
14,000
|
||
12,000
|
||
10,000
|
||
8,000
|
||
6,000
|
||
4,000
|
||
2,000
|
||
-
|
||
Estimated Owners’ Cash Profit and OCP Margin for Walmart
|
||
Total Estimated OCP (LH) OCP Margin (RH)
|
||
As one might expect with such a large, mature firm, OCP margin
|
||
(shown on the right-hand axis) is very steady—barely breaking from the
|
||
3.5 to 4.5 percent range over the last 10 years. At the same time, its to-
|
||
tal OCP (shown on the left-hand axis) grew nicely as a result of increases
|
||
in revenues. Over the last seven years, Walmart has spent an average of
|
||
around 2 percent of its revenues on expansionary projects, implying that |