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before consideration of petitioner’s “deferred compensation”
obligation to Mr. and Mrs. Myers.
Some prior reasonable compensation cases have also examined
and considered the taxpayer’s cumulative average return on
equity. E.g., Labelgraphics, Inc. v. Commissioner, 221 F.3d
1091, 1099 (9th Cir. 2000); Dexsil Corp. v. Commissioner, T.C.
Memo. 1999-155. From January 1, 1987, through July 31, 1996,
petitioner’s annual return on equity (under each of the three
approaches used supra, before consideration of petitioner’s
“deferred compensation” obligation to Mr. and Mrs. Myers) and
cumulative average return on equity (without regard to the
deferred compensation obligation) are as set forth below:
Return on Equity Cum. Avg. Return on Equity1
FYE Begin. Yearend Year’s Begin. Yearend Year’s
July 31 Equity Equity Avg. Eq. Equity Equity Avg. Eq.
1987 183.17% 58.33% 88.48% 183.17% 58.33% 88.48%
1988 193.37 59.58 91.09 188.27 58.96 89.79
1989 45.77 34.80 39.54 140.77 50.90 73.04
1990 28.81 22.46 25.24 112.78 43.79 61.09
1991 31.21 24.57 27.50 96.47 39.95 54.37
1992 1.50 1.48 1.49 80.64 33.54 45.56
1993 27.77 21.74 24.39 73.09 31.85 42.53
1994 68.42 40.69 51.03 72.50 32.96 43.60
1995 12.46 11.09 11.74 65.83 30.53 40.06
1996 (11.58) (16.35) (13.56) 58.09 25.84 34.69
1Sum of current year’s return on equity and each prior year’s return on equity,
divided by petitioner’s number of years of operation through current year.
In our opinion, the cumulative average annual return on
equity petitioner experienced over the period from January 1,
1987 through July 31, 1996, would not be as significant to an
independent investor as petitioner’s return on equity for the
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