Division Competitors data

Before turning to market data, we would emphasise again that the relevant benchmark is the ex-ante cost of equity capital. Ex-post observed returns are only an imperfect proxy for ex-ante expectations, as ex-post realised returns are not necessarily equal to ex-ante required returns. If investors are interested in the past performance of an industry, they should look at the ROCE, an ex-post return relatively neutral to the capital structure of different firms, since it includes both debt and equity. As the level of leverage in a company increases, the return on equity for shareholders increases, as compared to the ROCE.

In what follows, we analyse data on the ROCE of a representative group of competitors from various sources and observe that results are not out of line with our calibration exercise.