Valuation of Securities and Cost of Capital - Assignment Example

VALUATION OF SECURITIES AND COST OF CAPITAL The valuation of securities refers to the act of assigning a financial value to a company's assets. The major problem encountered in valuing an asset that is not available in the market for sale is that it is worth only the amount for which the seller is willing to sell it and the amount that the buyer is willing to pay for it. A company's assets can be valued with the help of the calculation of net assets. The net assets of Tesco plc and Sainsbury plc are 14,877m and 7,937m respectively. Tesco Plc m Sainsbury Plc m Current Assets 3,751 Current Assets 3,845 Non-Current Assets 18,644 Non-Current Assets 8,902 Current Liabilities (7,518) Current Liabilities (4,810) Net Assets 14,877 Net Assets 7,937 However, the problem in valuing a company's assets with the help of net asset calculation is that these values obtained from the both the companies' balance sheet for the year ended 2005 are based on the book values. These book values are unreliable because they might be significantly different from the current value of these assets. The values of assets and liabilities are based on past transactions that demonstrate no account of the future prospects. A company's assets can be evaluated on the basis of their market values. Market value of shares can be determined when they are traded on a recognised stock exchange. The share values estimated from the current market price are actual values, however this procedure becomes difficult when the company is unquoted. The market value of shares, which is also known as market capitalisation, is obtained by multiplying a company's total shares in issue with the current market price per share. The current market price of Tesco plc is 384.50p per share and Sainsbury plc is 395.00p per share. Hence, the market capitalisation of Tesco and Sainsbury is 3,007m and 663m respectively (see appendix I). P/E ratio is obtained when current market price per share is divided by earning per share. When the same ratio is inversed and earning per share is dividend by market price per share we get Earnings Yield. Both of these ratios include a company's market price per share which demonstrates its perceived ability to grow i.e., it shows how the shareholders perceive the company's future prospects. Earning per share is based on accounting profits and is derived form company's financial statements. Tesco plc and Sainsbury plc's EPS is 20.07p and 3.8p respectively. The P/E ratio for Tesco plc is 19.15 and Sainsbury plc is 103.94 (see appendix II), whereas the Earnings Yield of both these companies is 0.052 and 0.009 respectively (see appendix III). Although Sainsbury plc's P/E ratio 103.94 is much higher than that of the Tesco plc i.e., 19.15, yet the earnings yield of Sainsbury plc is much lower than the Tesco plc. The reason is that Sainsbury's EPS is considerably lower than the Tesco. Sainsbury plc is not more valuable than Tesco plc but shareholders perceive Sainsbury to be more valuable than Tesco, as reflected by the market prices of both the company's shares. Bonus shares are provided to shareholders without any cost as a form of dividend in lieu of cash dividends. The issue of bonus shares to the shareholders does not cause shareholders' ownership to diminish, but it leads to the reduction of EPS and increase in P/E ratio. Tesco plc's EPS before dilutive share options was 20.07p per share and after dilution it decreased to 19.79p per share (annual report 2006, p60). Sainsbury plc's basic and diluted earnings are the same i.e., 3.8p per share because the company has closed all the share-options and share-plans (annual report 2006, p42). In the case of Right issues, companies issue shares at a price less than the one prevailing in the market also known as deep discounting. Such issues involve terms such as 1 for 4 etc. Right issues are used to raise long-term finances for a company for its investment decisions. This sort of share issuance also does not lead to a diminution in shareholder ownership, unless rights options are not taken up. Right share issuance also leads to a decrease in EPS and an increase in P/E ratio. Current cash flow is another means of estimating the real worth of the company. Cash flows can be obtained from a company's accounting profit using the indirect method in the cash flow statement. EBITDA and Free Cash Flows are used to estimate a company's current cash flows. The EBITDA of Tesco plc and Sainsbury plc is 2940m and 687m respectively (see appendix IV). Tesco plc's EBITDA is much higher than that of the Sainsbury plc. Free Cash Flows are general rules to measure current cash flows using residual income methods. The problem with this method is that it ignores changes in working capital requirements, which includes product life cycle issues, building or reducing of stock and prospects of bad debts. Free cash flows are based on accounting values (i.e., profit after tax + depreciation - investment expenditure) and are more useful as performance measures than for valuation purposes. The free cash flows for Tesco plc and Sainsbury plc are 2354m and 507m respectively (see appendix V). The Dividend Valuation Model (DVM) says that 'the true value of an ordinary share is the discounted value of all dividends'. This model assumes that dividend payments of a company are consistent i.e., constant in perpetuity. The major problem with this model is that companies seldom pay consistent dividends and thus amount of dividends keep on changing. Another problem is that it is very difficult to apply the dividend valuation model to the unquoted companies. Both the companies, i.e., Tesco plc and Sainsbury plc have not paid an amount of dividend that is constant in perpetuity over the period of last five years therefore this model cannot be applied to these companies. Dividend Valuation Model with Growth is another model to measure the value of an ordinary share. This model assumes that companies will try to increase the dividend payments each year in line with the growth expectations and shareholder's expected yield (ke). The following equation is used for the calculation of dividend valuation model with growth: D1 = Do(1 + g) ke - g ke - g This method is particularly useful for establishing a market value for unquoted companies. The problems with this dividend is that there are companies that pay no dividend and it is very difficult to ensure constant supply of worthwhile project to guarantee a dividend return. Also, this method cannot be calculated where the growth rate (i.e., g) is greater than the required return rate (i.e., ke or discount rate). The dividend valuation with growth of Tesco plc is 287.6, assuming the expected growth rate to be 11% for both the companies and shareholders' required return rate to be the same as the companies' ROCE, whereas this model cannot be calculated for Sainsbury plc because the assumed growth rate is higher than the company's required rate (i.e., Return On Capital Employed or ROCE) (see appendix VI). Shareholder Value Analysis (SVA) states that the value of a business is the NPV of all of its future cash flows that have been discounted properly (Rappaport, 1986). This theory endeavours to associate shareholder value with the management's decision-making concerning sales growth and margins, working capital and fixed capital investment, cost of capital and taxation. This theory urges management to strive to minimise the company's cost of capital. Economic Value Added (EVA) is propounded by Stern Stewart, which is important as a valuation measure. This theory emphasises the links to residual incomes. It is calculated by multiplying shareholder expected return by the company's invested capital and then subtracting its product from NOPAT (i.e., Net Operating Profit After Tax). To calculate NOPAT, company's expenditures on research and development, advertising and goodwill are added back to profits and capital invested because it is assumed that these expenditures have the ability to create future benefit and therefore should be capitalised. The Economic Value Added (EVA) of Tesco plc is 1833.84m and Sainsbury plc is 316m (see appendix VII). Major problem with EVA is that it is a very sophisticated and expensive technique, plus the items that are involved in adjustment are very easy to determine. Also, it is very difficult in establishing ke for all operations. When this measure is used as a performance indicator, it may prompt sub-optimal decision-making. The cost of capital theory explains the cost that a company bears on the individual elements of long-term finance. In order to evaluate a company's cost of capital, this theory considers the current market prices to the investors as well as these investors expected returns. Cost of capital is used as a method to determine an appropriate discount factor for the purpose of evaluating the future projects. Capital Structure of a company is obtained with the help of gearing ratios, which expose the proportions of debt and equity in the total long-term capital structure or finance. Gearing levels are greatly influenced by factors such as interest rates, tax shields, dividend yields, dividend growth and stability of future cash flows. Target gearing ratio is one of the important gearing ratios, which shows the ratio of debt/equity sustainable for a longer period. This ratio of debt to equity may change due to certain external factors such as exchange rates and interest rates, as well as yield rates and shareholder expectations. It is the first and foremost responsibility of a company's financial management is to keep the cost of capital as low as possible to enhance the acceptability of future cash flows. According to book values, the target-gearing ratio of Tesco plc is 57.98% and Sainsbury plc is 68.89%, which shows that Sainsbury plc is more geared than Tesco plc (see appendix VIII). However, when the same ratio is calculated based on the market values of debt and equity, the target-gearing ratio for Tesco plc and Sainsbury plc becomes 50.8% and 67.07% respective, while assuming that debt is trading at 96 (per 100 block). The results of target gearing ratio on market values is different from that of the book values. This difference is greater in the case of Tesco plc than Sainsbury plc. Companies are rarely un-geared and most of the companies utilise a mix of debt and equity finance in their long-term capital structure. The Weighted Average Cost of Capital (WACC) is a very important measure to evaluate a company's cost of capital. It has been defined by official terminology of CIMA as, "the WACC is the average cost of the company's finance (equity, debentures, bank loans) weighted according to the proportion each element bears to the total pool of capital. Weightings are usually based on market valuations, current yields and costs after tax". This measure is also used in a company as a discount factor in project cash flow calculations. The WACC is obtained by using the following formula k0 = ke ( VE ) + kd ( VD ) (VE + VD) (VE + VD) Where k0 is the WACC, ke is the cost of equity, kd is the cost of debt, VE is the market value of the equity to the company and VD is the market value of debt to the firm. The WACC for Tesco plc is 51.13%, which is a bit lower than that of 57.50% for Sainsbury plc (see appendix IX). The calculation of WACC assumes that the gearing ratio or the target-gearing ratio is known and will remain consistent for the definite period i.e., a project's life. It also assumes that a company's expected cost and revenues can easily be determined. About past knowledge, the theory assumes that the investment decisions would carry the very same risks that had already been undertaken. One of the theory's assumptions is also that a company's financing decision will have no effect on its gearing ratio. The problem with this theory is that in actuality, the financing decision has its impact on a company's gearing ratios and a desired mix of debt and equity might not raise sufficient funds for it. Specific funds are possibly obtained from a single source, hence a company's level of gearing, cost of equity and cost of debt will change along with the changes in financing decisions. It is therefore important that the company should not bring a great variance to its financing sources so that no great changes occur to the target- gearing ratio. Both the companies in analysis i.e., Tesco plc and Sainsbury plc keep a mix of debt and equity in their capital structure but debt generally occupies more volume than equity funds, which is evident from their target-gearing ratios. A significant point is that the business estimates are generally higher, which indicates that companies might lose a great number of opportunities because of high discount factors. In reality, the acceptable projects showing high discount factors might suggest a very high level of profitability, some considerable errors in estimating the discount factor and changes appearing over a project's entire life. Practically a higher WACC hints to possible solvency issues in the company. It is important that tax considerations should not affect a company's financing decisions, however it should also be noted that tax shields leads to increase in cash flows. The Capital Structure Theory states that expected returns from equity investments are usually greater than those required for debt investment. More debt generally causes the Weighted Average Cost of Capital to decrease; hence increasing a company's gearing level is useful to increase its value. Increasing debt involves increasing payments of interest to the lenders and therefore leads to a decline in profits. Debt holders are less exposed to risk because the company has a contractual or legal obligation to pay them interest and even if the company goes bankrupt, the debt holders would be having a secured claim on its assets, therefore they will accept a lower rate of return on the debt investment. On the other hand, ordinary shareholders are more exposed to risk because the company bears no legal obligation to pay return to them and in case of bankruptcy the shareholders do not have a secured claim on the company's assets, therefore they will require a higher rate of return on equity investment. Traditional theory of gearing states that lower gearing levels do not have any impact on the required return of equity holders ke. It also says that an increase in gearing levels increase the perceived risk to both debt and equity and therefore the required return to both debt and equity will increase. The WACC is minimised at an optimal gearing level. Modigliani and Miller (1958) challenged both the capital structure and traditional approaches of gearing. They propounded that the individual investors and organisations will find the optimal gearing level. They also claimed that changes in the gearing level do not have any impact on the WACC of a company. They criticised these theories of being too academic and assumptions as too unrealistic. Operational gearing theory suggests that companies keep a fixed proportion of operating costs and as the proportion of fixed cost to total cost grows, this causes increased pressure on sales revenues. According to this theory, companies such as Tesco and Sainsbury would be more interested in maximising their sales revenues and as they reach their breakeven point, they will start selling on discounts or reduced prices so as to increase profit by selling all the goods. Directors are responsible to take the stance that would go in the best interest of shareholders. The financing decisions can lead to conflicts between directors and investors. Trade off theory states that higher debt leads lower WACC, which is suitable to shareholders, and increase the risk of failure, which is not suitable for directors. This theory is dependent on risk profiles and monitoring costs on audits, analysts, publicity, and IFRS regulations for Tesco and Sainsbury plc. When a company increases its debt finance, Signalling suggests that directors are confident regarding the future of operations, cash flows and their ability to service high debts. The financial statements of these companies show that Tesco plc is a much bigger company than the Sainsbury plc. Also the financial position, sales and profitability of both the companies are very different from each other. The EPS, P/E ratio and earnings yield of both the companies reveal such facts. The financing needs of both the companies are also different as well as the cost of debt and equity. These facts are also important in the analysis of these companies. DIVIDEND POLICY AND DIVIDEND DECISION Dividend refers to distribution of after tax profits or returns to the ordinary and preference shareholders. Companies mostly pay dividend in cash but it could also be paid in the form of other assets, i.e., bonus shares. Because lenders and creditors also have a right on the company's profit, there are legal limitations on the distribution of certain amounts of profit as dividends to the shareholders to provide protection to the debt holders. Small companies (private ltd) are restricted to the distribution of realised profits only, whereas the dividend distribution of large companies (public ltd) is limited to realised and unrealised profits for example including realised revaluations and deferred development costs. Dividend policy adopted by the directors of a company mostly has strategic dimensions. The two companies in consideration i.e., Tesco plc and Sainsbury plc have transferred returns to shareholders in the form of dividends as 8.63p per share and 8.00p per share respectively. The dividend payout ratio is obtained by dividing a company's dividend per share by its earnings per share. This ratio shows that Tesco plc has paid 0.42 or about 42% of earnings to its shareholders compared to 2.10 or 210% for Sainsbury (see appendix X). The dividend cover ratio is obtained by simply inversing the dividend payout ratio. This ratio reveals that Tesco plc's earnings were 2.32 times enough to cover the payment of dividends to its shareholders as compared to Sainsbury plc whose earnings were 0.47 times of its earnings (see appendix XI). This shows that Sainsbury plc has paid dividends to shareholders at a level that exceeds its EPS. The growth rate of dividend payments can be calculated for a company that pays a consistently growing dividend to its shareholders. It is calculated by formula: 4 DPS (T5) -1 DPS (T1) Tesco plc's dividend growth rate is 11%, which shows the consistent rate of dividends paid by the company over the last five years (see appendix XII). The dividend growth rate for Sainsbury plc could not be calculated because the company has been following a consistently growing rate of dividends, in fact, the company's dividend payment rate has fluctuating over the period of last five years. Companies often issue bonus shares in lieu of cash in cases when positive NPV projects are available and long-term finance is required. Tesco plc has been paying bonus shares as a part of share-options and share-plans, whereas Sainsbury has closed all the schemes under share-options and share-plans that required bonus issues. Dividends are usually paid twice a year and are paid to the shareholders by registrars at the record date. The dividend payments are followed by reactions that are demonstrated in the company's market price per share. Tesco plc paid interim dividend of 2.53p per share and final dividend of 6.10p per share, making total dividend of 8.63p per share for the year ended 2005. The record date of Tesco plc was on 14th July 2006 (annual report 2006, p18). Sainsbury plc, on the other hand, paid an interim dividend of 2.15p per share and a final dividend of 5.85p per share, making a total dividend of 8.00p per share. The record date of Sainsbury plc was 21st July 2006 (annual report 2006, p32). Traditional theory of shareholders' wealth preference states that the dividend policy of an organisation or the pattern of dividend payments is of great significance to the shareholders, in particular, the timing of dividend payment and the policy of consistent growth. The theory also states that the investors would prefer 1 in cash today rather than having 1 re-invested for future growth. Hence, according to investors, cash is always better than a potential capital gain that the directors are planning to obtain out of the positive NPV project. Also, future gains are less certain. This theory says that high retention rates may have an adverse effect on share price through a rise in expectation i.e., required return of shareholders. Gordon's growth model shows the effect of dividends and rise in shareholders expectations on the company's share price. It is calculated as: P0 = D0 (1+g) ke - g Where P0 is the market price of share, D0 is the dividend at a time (constant in perpetuity), ke is the shareholders' expected rate of return and g is the growth rate of dividends. Gordon's growth model for Tesco plc over the last five years shows that the market price of the company's shares started to fall down as the shareholder's expected return (ke) rise. The price of Tesco plc's shares obtained from Gordon's growth model for the current year i.e., 136.8p per share is very different from the company's current market price at 384.50p per share (see appendix XIII). This shows how heavily the shareholder's expected rate of return can affect the company's share price. The same model could not be applied to Sainsbury plc because the company's dividend payments do not show a consistent growth trend over the last five years. The modernist view of Modigliani and Miller (1961) including the Fisher separation theory of dividend irrelevancy suggests that the pattern of dividend has no effect on the shareholder's wealth. This theory states that the wealth of shareholders is only affected by the quality of any positive NPV projects undertaken by the business. Dividends are paid to shareholders as a residual value when no appropriate projects are available for the company to invest. Shareholders are able to create their own dividend policy by selling their shares to effectively create their own dividend in the case where no dividend is paid. Shareholders can also use the dividend payment to buy more shares in the case where a dividend is paid and they do not require it. A company paying high dividends is left with less retained funds available for re-investment in positive NPV projects. Modigliani and Miller theory assumes that markets are efficient and perfect information is available. It also assumes market conditions to be frictionless for example there are no share issue costs, no share transaction costs for secondary trading and not tax. No taxation means that the dividends may lead the shareholders into a higher tax rate band and shareholders' preference is greatly affected by personal taxation. However, dividends may be converted into tax-free investments these days for example ISA's. Many factors affect the dividend policy of a company for example clientele, signalling and agency costs. Clientele includes the type of company's investors for example young investors prefer capital gains and re-investment of funds whereas older investors prefer current cash and income. Taxation issues with the investors also affect the dividend policy. The transaction costs may prevent a company's directors to make constant changes to the policy. Signalling refers to the fact that directors have more access to a company's inside information as compared to the investors. The dividend policy may indicate the level of confidence in the company's future. It also demonstrates a company's ability to pay in cash, which is an unambiguous message being more powerful than the written intent. Dividend policy may also be used as a competitive weapon by paying higher ratio than the competitors. It might also be counter productive due to business politics and the case where the directors give greater priority to signal value as compared to the sound financial decision-making. Agency costs appear when there are different groups with varying interests and every individual struggling to maximise personal utility, for example shareholders, management and lenders. Agency costs refers to transfer of costs by one group to another group in serving its own interests by changing the risk/return position of the group. These costs can be overcome by contractual constraints for example directors may attempt to take out money from the business in the form of salaries, bonuses and perks, whereas shareholders can constrain this attempt by demanding high dividends. As dividends paid to shareholders increase, there will be a reduction in the company's ability to service debt and the risk will be moved to lenders. The debt holders, on the other hand, may restrict the payment of dividend on the part of the company. Apart from these factors, there are other factors that affect a company's dividend policy. For example, a company will pay small dividends if there are more investment opportunities available for the business. Company will also pay low dividend payments if financing opportunities are costly or if there are legal limits to high dividend payments or contractual constraints from lenders. Profit stability and control of shareholders of a business also determines its dividend policy. Market expectations and the dividend policies of other companies also induce the dividend paid by a company to either go up or down. Dividend smoothing is when directors recognise the importance of dividend policy or pattern of dividend payments. A policy of smooth or constant dividend payments is considered as favourable to constant changes. Dividend smoothing implies giving no surprises to the shareholders by means of sudden cuts or increases. It allows directors to save in the time of high profits and payout from retained earnings when profits are not sufficient. For example, Sainsbury plc is not following a consistent growing policy for dividend payments, but it has paid dividends higher than its earnings this year. There are several alternatives to cash payments of dividends, i.e., dividends can be paid in the form of bonus issues and share repurchases. Bonus issues or scrip dividends imply additional shares instead of cash, issuance of more shares and promise of higher dividends in future. These may be option based that some might use to increase their percentage of holding for instance in the case of Tesco plc. Share repurchase is a popular method of returning surplus cash to shareholders. This may affect financial structure of the company and support share price at the time of decline. Pecking order theory states that cost of long-term finance is lower in the case of retained profits including dividends, then debt and issuance of new shares. Cash flows should be held when there are attractive or positive NPV projects available to the company and should be returned to shareholders when no suitable projects are available. For these two companies in consideration i.e., Tesco plc and Sainsbury plc, it is important to note that both companies have varying levels of profits and thus follow different policies for dividends. Tesco plc has been paying consistently growing dividend payments to its shareholders over the last five year whereas Sainsbury plc's dividend payments have been fluctuating over the same period. Tesco plc has paid dividends as a percentage of its earnings and Sainsbury plc has paid dividends to a level that even exceeds its earnings. APPENDIX: SECURITY VALUATION AND COST OF CAPITAL Appendix I: Market Capitalisation Tesco Plc Sainsbury Plc 7,823m x 384.50p= 3,007m 1,679m x 395.00p= 663m Appendix II: P/E Ratio Tesco Plc Sainsbury Plc 384.50p = 19.15 395.00p = 103.94 20.07p 3.8p Appendix III: Earnings Yield Tesco Plc Sainsbury Plc 20.07p = 0.052 3.8p__ = 0.009 384.50p 395.00p Appendix IV: EBITDA Tesco Plc 1,576 + 364 + 429 + 508 + 63 = 2940 Sainsbury Plc 58 + 159 + 449 + 21= 687 Appendix V: Free Cash Flow Profit after tax + depreciation - investment expenditure Tesco Plc 1,576+ 758 = 2354 Sainsbury Plc 58 + 449 = 507 Appendix VI: Dividend Valuation Model With Growth D1 = Do(1 + g) ke - g ke - g Tesco Plc 8.63p __ = 287.6 0.14-0.11 Sainsbury Plc 8.00p___ = Can not be done because growth rate > return rate 0.014-0.11 Assumption: required rate of investor is assumed to be the ROCE and expected growth rate 11% Appendix VII: EVA NOPAT: Tesco Plc Sainsbury Plc Operating Profit 2,280 Operating Profit 229 Tax (649) Tax (46) 1,631 183 Add: Intangible Assets 1,525 Add: Intangible Assets 191 3,156 374 EVA = NOPAT - (ke x invested capital) TA-CL= 9,444 TA-CL= 3,965 Ke = Expected rate required = Return On Capital Employed 3156- (9444 x 14%)= 1833.84 374- (3,965 x 1.46%)= 316 Appendix VIII: Target Gearing Ratio Book Values: Tesco Plc Sainsbury Plc 13,033 = 57.98% 8,782 = 68.89% 13,033 + 9,444 8,782 + 3,965 Market Values: 12,511 = 50.8% 8,431 = 67.07% 12,511 + 12,084 8,431 + 4,139 It is assumed that debt is trading at 96 (per 100 block) Appendix IX: Weighted Average Cost Of Capital k0 = ke ( VE ) + kd ( VD ) (VE + VD) (VE + VD) Where: k0 = WACC ke = the cost of equity kd = the cost of debt VE = the market value of equity to the firm VD = the market value of debt to the firm Tesco Plc ke= 0+(1+0.1) = 0.286 384.50p kd= 0.09(1-0.25) = 6.75 WACC= 9,444 + 13,033______ 0.286 9,444 + 13,033 0.675 9,444 + 13,033 = 51.13% Sainsbury Plc ke= 0+(1+0.4) = 0.354 395.00p kd= 0.09(1-0.25)= 6.75 WACC= 3,965 + 8,782 0.354 3,965 + 8,782 0.675 3,965 + 8,782 = 57.50% Note: This is assumed that debt is trading at 100 (per 100 block), the coupon rate is 9% for both the companies and expected growth rate is 10% and 40% for Tesco Plc and Sainsbury Plc respectively. DIVIDEND POLICY AND DIVIDEND DECISION Appendix X: Dividend Payout Ratio Tesco Plc Sainsbury Plc 8.63p = 0.42 8.00p = 2.10 20.07p 3.8p Appendix XI: Dividend Cover Ratio Tesco Plc Sainsbury Plc 20.07p = 2.32 3.8p = 0.47 8.63p 8.00p Appendix XII: Dividend Growth Rate 4 DPS (T5) -1 DPS (T1) Tesco Plc Sainsbury Plc Years DPS Years DPS 2002 5.60p 2002 14.72p 2003 6.20p 2003 15.45p 2004 6.73p 2004 15.56p 2005 7.56p 2005 7.80p 2006 8.63p 2006 8.00p Tesco Plc= 11% Sainsbury Plc= The company is not following a consistent dividend policy, therefore a growth rate cannot be calculated. Appendix XIII: Gordon's Growth Model P0 = D0 (1+g) ke - g Tesco Plc Years Required Yield (ke) P0 2002 14% 207.2 2003 14% 229.4 2004 15% 186.7 2005 16% 167.8 2006 18% 136.8 Note: Required yield (ke) is assumed to be the company's Return On Capital Employed ratio (ROCE). Read More