Investment Lifecycle and Strategies
HAYDEN'S TYPICAL INVESTMENT LIFECYCLE
OUR RESEARCH PROCESS FOCUSES ON ANSWERING: "WHAT WILL BE THE
FUTURE EARNINGS POWER OF THIS BUSINESS OVER THE NEXT 5 $ 10
YEARS?".
.
Since Earnings Growth is a function of Reinvestment Rate x Return on Invested Capital, we try to analyze the
unit economics of business' incremental reinvestment spend (the Incremental ROIC). This often requires
primary research, scuttlebutt, and lots of coffee chats / meetings to quantify the variables going into this
analysis, since very rarely will these granular details be given in the public financials.
If we can get these underlying variables correct, we can have a better understanding of what the business' future
earnings growth profile looks like.
See our Calculating Incremental ROIC report for more details (LINK)
Earnings Growth Drivers
Illustrative Example
Capital Reinvested
Prior Year Earnings
x Reinvestment Rate
= Addl Capital Reinvested
Year 1
Year 2
Year 3
Year 4
Year 5
$ 20
$ 23
80%
80%
$ 27
100%
$ 32
100%
$ 16
$ 19
$ 27
$ 32
Earnings Growth
Existing Capital
$ 100
116
$ 135
$ 161
+ Reinvested Earnings
16
19
27
32
= Total Capital Investment
$ 100
$ 116
$ 135
$ 161
$ 194
x Return on Inv. Capital
20%
20%
20%
20%
20%
= Earnings
memo: Growth Y/Y - Earnings
$ 20
$ 23
16.0%
$ 27
16.0%
$ 32
20.0%
$ 39
20.0%
HAYDEN CAPITAL 15View entire presentation