Continuing on with the AGR discussion, let’s now modify the equation a little.
First, this ratio is another one that is commonly viewed as a percentage, so we will multiply the result by 100 to more easily express it as a percentage.
Second, though I think it goes without saying, we want to make sure that we are subtracting taxes from the profit in the equation. We do this because we do not want our profit inflated. We want to back our taxes from our current earnings, not our equity, so this is expressed as Profit After Taxes.
The last clarification is that we need to subtract any intangible assets from our company. We cannot really tap into intangibles such as Goodwill in order to fund a company, so this last expression is written as Tangible Equity from Last Year.
Therefore, the new equation is:
100 X (Net Retained Profit After Taxes/Tangible Equity from Last Year)
…Your business THRIVES on a solid FOUNDATION!!!