How Much Must the Business Reinvest to Grow?

Growth is not free. A company must reinvest a portion of earnings into capex and working capital to sustain it. The reinvestment rate connects growth and cash flows.

Reinvestment RateROICGrowthCapexWorking Capital

Live Result

0.533333

ƒ: (capex - DA + delta_wc) / (EBIT * (1 - tax))raw: 0.533333

ƒ(x)

Use variable names from the panel above (e.g. FV, r, n) — or type numbers directly: 10000 / (1 + 0.08)^10

capex

Capital expenditures

capex = 100

Depreciation & Amortisation

DA = 40

delta_wc

Change in working capital

delta_wc = 20

EBIT

Earnings Before Interest & Tax

EBIT = 200

tax% as decimal

Tax rate (decimal)

tax = 0.25

💡 You can also enter values directly in the formula: 10000 / (1 + 0.08)^10

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Learn: How Much Must the Business Reinvest to Grow?

Estimating Cash Flows · Educational Guide

The Core Idea

A company growing at 10% per year must be investing somewhere to create that growth. Every percentage point of growth requires a portion of today's earnings to be reinvested. The question is: how much?

How It Works

Reinvestment Rate = Net Capex + ΔWC / NOPAT. NOPAT is after-tax operating profit. Net Capex = Capex − D&A (maintenance). The higher the reinvestment rate, the less free cash the firm generates, but potentially the faster it grows.

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Real-World Example: Capex $100M, D&A $40M, ΔWC $20M → Net reinvestment = $80M. NOPAT = $200M × 0.75 = $150M. Reinvestment rate = 80/150 = 53.3%. The company puts back 53 cents of every dollar earned into growth.

How Much Must the Business Reinvest to Grow?

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