874  Index
Pottruck, David, 580
PP&E (percentage of property, plant, 
and equipment), 276
Preferred stock, 190
Pre-mortem, 579
Price premium advantages, 132
Price-to-earnings ratio (P/E)
leverage, 814–816
stock returns, 104–105
Principles of Corporate Finance (Brealey, 
Myers, and Allen), 43
Privately held subsidiaries, 340–341
Procter & Gamble (P&G), 35, 57, 87, 
129–130, 140–141, 160–161, 513, 
530–531, 537, 595–596, 651–652
Productivity, and ESG, 89–90
Property, plant, and equipment 
(PP&E), 276
Provisions, 435–441
defined, 435
income-smoothing, 347, 440–441
long-term operating, 347, 438–439
nonoperating, 347
ongoing operating, 346, 437–438
restructuring provisions, 439–440
taxes and, 441
Purposeful overconservatism, 298
Quality, 132–133
R&D. See Research and development
Rational price discipline, 144–145
Real options, 203–204, 766, 769
Real-option valuation (ROV), 761, 
769–772, 788–792
Regulation, and ESG, 88
REITS (real estate investment trusts), 
48
Replicating portfolios, 204, 770–771
Reputation management, 610
Rerating, 47
Research and development (R&D), 6, 
237
Reserves. See Provisions
Operating working capital, 212–214, 
230, 275–276
Operational risk, 754
Operations valuation, 181–189
Opportunity cost, cost of capital as, 
56–57
Optimism, excessive, 578–579
Options, real, 203–204
Organizational health, 559
Overconservatism, 298
Payout ratio, 256–257
Pecking-order theory, 817–818
Peer groups, 382–384
PEG ratios, 385–386
Pensions and postretirement benefits, 
217–218, 236–237, 343, 347–348
analyzing and valuing, 457–462
cost of capital, 462–464
expected return and earnings 
manipulation, 461–462
forecasting, 277–278
overfunded, 217–218
unfunded, 457–465
value of equity, 465
PepsiCo, 298, 468, 588
Percentage of property, plant, and 
equipment (PP&E), 276
Performance analysis. See Historical 
performance analysis
Performance review, 582–584
Perpetuities, 793–795
Petajisto, Antti, 673
Phillips, 536, 629
Pillsbury, 529
Planning
annual operating plan (AOP), 
581–582
strategic, 581
Polo, Andrea, 590
Porter, Michael, 129
Portfolio management, 535–537
Portfolio momentum, 156
Portfolio treadmill, 167

Index  875
relationship to growth and cash 
flow, 29–33
stability of, 148–152
stock returns, 106–107
Return on new invested capital 
(RONIC), 288, 289, 294, 298
Revenue forecasting, 265–267
Revenue growth, 155–172. See also 
Growth
analyzing, 247–253
accounting changes and 
irregularities, 251–253
currency effects, 248–249
mergers and acquisitions, 249–250
from attracting new customers, 161
and balance with ROIC, 155
decay analysis, 171–172
decomposing, 251–253
and digital initiatives, 95–96
drivers of, 156–158
empirical analysis, 167–172
and ESG, 86–87
historical trends, 168–169
from increasing market share, 161
from new product development, 
160
from persuading existing customers 
to buy more product, 160–161
projecting, 186–188
rates across industries, 169–170
sustaining, 163–167, 171–172
through acquisitions, 162–163
through incremental innovation, 
161
through price increases, 162
through product pricing and 
promotion, 161–162
transition probability, 172–173
and value creation, 158–163
value of major types of, 159
variation in, by industry, 157
variation in, over product life cycle, 
139
volatile, by industry, 169
Restructuring reserves, 233
Retirement liabilities, unfunded, 190, 
457–465
Return on assets (ROA), 240
Return on invested capital (ROIC), 18–
19, 20–21, 127–154, 239–247, 294
alternative measures of, 483–491
cash flow return on investment 
(CFROI), 485–490
analyzing
goodwill and acquired 
intangibles, 241–242
balancing with growth, 24–25
capitalizing expenses investments, 
467–475
capital-light business models, 
475–478
competitive advantage and, 131–139
cost and capital efficiency 
advantages, 135
decay analysis, 150–152
decomposing, 242–247
defined, 49–50, 205
differences across industries, 144–148
drivers of, 128–131
effect of acquisitions on, 152
empirical analysis, 141–152
equaling IRR, 484–485
focus on high- vs. low-ROIC 
companies, 28
in forecasting, 262, 281
in high-growth companies, 717–718
historic trends, 141–142
interaction between growth and, 
27–29, 36–40
and length of product life cycle, 139
line item analysis, 244–245
managerial implications, 36–40
operating analysis, 245–247
persistence by industries, 148–149
production outsourcing and, 477–478
and product renewal potential, 
140–141
projecting, 186–188