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ORGANIC GROWTH INDEX “OGI”

ORGANIC GROWTH INDEX “OGI”. (1996 – 2006). Edward D. Hess 2/24/2008. Background. OGI is a financial model built in 2002 to illuminate high organic growth public companies. It applies six screens to the top 1000 EVA creating companies (excluding financial companies).

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ORGANIC GROWTH INDEX “OGI”

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  1. ORGANIC GROWTH INDEX “OGI” (1996 – 2006) Edward D. Hess 2/24/2008

  2. Background OGI is a financial model built in 2002 to illuminate high organic growth public companies. It applies six screens to the top 1000 EVA creating companies (excluding financial companies). The OGI model results were released for the years 1996 – 2001; 1997 – 2002; and 1998 – 2003. The Financial Times and Fortune Magazine have written about the model and those results, which were also published in Hess’s two organic growth books and in the Corporate Finance Review. The beginning sample size in the three new time periods is 801 (1999-2004), 793 (2000-2005), and 799 (2001-2006) companies.

  3. Six OGI Tests • Companies are ranked by EVA/Capital Invested and the top 300 companies move to the next test. • Then two growth tests are applied – each company’s SALES CAGR and CFFO CACR are compared to their industry averages to pick companies who have grown above industry averages. • Then S&P’s core earnings computation is used to compare a company’s core earnings to its reported net income.

  4. Then a company’s rate of growth of its receivables is compared to its rate of growth of sales to eliminate companies growing receivables much faster than sales. • Then, as another quality of earnings test, a company’s cash flow from operations is compared to its net income; and • Lastly, companies are eliminated which have acquired more than 35% of their increase in market value during the reporting time period.

  5. OGI Results

  6. Prior Results In the three prior time periods 45 companies were OGI “winners” in at least two of the three time periods.

  7. Of those 45 companies, 16 (36%) were either retail or restaurant chains, leading me to put forth a theory of “replicution”: that high organic growth companies have the ability to scale their business model across geography or large customer segments.

  8. New Results The OGI Model was applied to three new time periods: • 1999 – 2004 • 2000 – 2005 • 2001 - 2006

  9. New Results (Number of Companies)

  10. NEW RESULTS 72 Winners (in at least two time periods)

  11. Test Passing Rates

  12. Test Failure Rates

  13. Size = Market Cap

  14. 1996-2006

  15. 27 ALL STARS 13 Retail or Restaurant Chains

  16. What Changed? V = Winner

  17. What Changed? V = Winner

  18. What Happened? V=Winner

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