Financial Model for Amazon that Begins with ROIC and Growth and Derives Value

This page demonstrates how to create a financial model that begins with ROIC and growth rather than using a whole lot of inputs and deriving the statistics.  The example used is for Amazon.  Amazon’s stock has experienced a meterioc rise in value and the question addressed is what kind of growth, return and cost of capital.  Working backwards with this analysis forces you to evaluate a lot of fundamental valuation concepts.  As growth rates and returns change, the model cannot apply the simplistic McKinsey formula: Value = Earnings x (1-g/Return)/(Cost of Capital – growth).