Hi @Donald
While incremental returns on incremental capital invested is a useful measure, a slightly more useful measure in my opinion would be incremental returns on incremental equity deployed. This would allow us to create an estimated earnings growth rate for the business as well ( based on the earnings retained )
I am referencing this from http://gregspeicher.com/?cat=54
While nothing can replace the subjective & qualitative analysis of the more seasoned investors on this thread, a look at the incremental returns on incremental equity can be revealing.
After looking at some of the blockbuster stocks of the forum I can say for certain that they have been able to deploy additional equity capital at really high rates over a very long period(10 yrs)
*incremental capital = incremental equity capital
Circling back to FSL -
Over a 10y period, the incremental return on incremental equity has been a moderate 12%. Its not good or bad. 84.37% of the earnings have been reinvested which translates to a expected earnings growth rate of 10.42% ( 12% * 84.37%)
However, if you look at the rolling 3 year rates, thats where all the fireworks are.
In the last 3 years ( March 14 to March 16 )
The return on incremental equity has jumped significantly to 22% but the company is reinvesting only 44.91% of earnings leading to a lower growth expectation.
In my opinion i think the company is doing something ( i have not done enough reading on this company so please take this opinion of mine with a lot of skepticism ) that is manifesting itself in the numbers. However i don’t think the company is going to grow its earnings by more than 10%