I bring together the costs of equity and capital and the accounting returns to answer a critical question that every business faces; whether the returns earned on its investment exceed its hurdle rate. In computing excess returns, I did add a qualifier, which is that I would do the comparison only among money-making companies; after all, money-losing companies will have accounting returns that are negative and less than hurdle rates. With each sector, to assess profitability, you have to look at the percentage of companies that make money and then at the percent of these money-making firms that earn more than the hurdle rate. In the most sobering statistic, if you aggregate money-losers with the companies that earn less than their hurdle rates, as you should, there is not a single sector or region of the world, where a majority of firms earn more than their hurdle rates. In 2023, close to 80% of all firms globally earned returns on capital that lagged their costs of capital.
- Date Posted:
- January 31, 2024
Estimates of how long people are likely to live are generated through a measure known as “cohort life expectancy,” which projects the average age of death for someone born or turning 65 in a given year. People born in 1940 had a cohort life expectancy of 73, while people born today have a cohort life expectancy of about 85, and people born in 2100 are projected to have a cohort life expectancy of 89. That means the average person born today is likely to live to be 85 and the average person in 2100 is likely to live to be 89 years old. Life expectancy is even higher for those who make it to age 65.