Hi, 1) is my understanding correct that accounting rate of return on equity is the same as ROCE, which is calculated as PBIT/(Non-current assets + Current assets – Current liabilities)?
2) When calculating dividend growth rate (for Gordon Growth Model), we multiply ROE (current Profit AFTER Tax divided by total Equity) by retention rate?
I have these questions, because in Kaplan, they say: “Gordon’s growth approximation estimates the dividend growth rate using g = bre, where b is the retention rate of dividends and re is the accounting rate of return on equity” and then use ROE in calculations rather than ROCE.