Practice Exams, Volume 2, Exam 3, PM, Q100 leading, produce, referring, net

jmh530

Practice Exams, Volume 2, Exam 3, PM, Q100
The vignette states that he used forecasted fundamentals to establish a justified P/E. This means he is referring to the leading P/E.
Multiplying the leading P/E by the net profit margin - (E/S) will not produce the P/B ratio. Only the trailing will.
He is wrong about the P/S.
The answer states he is right.
Thanks!

anish

justified P/E * net profit margin = price/sales (he is correct)
Justofoed P/E * ROE = price / book (he is correct)
I had to play with this a bit to understand.

trogulj

No clue what you are saying….
justified P/E = (1-b)/r-g
multiply by net profit margin and you get
(1-b)(profit margin)/r-g
this is justified price/sales (leading)
multiply by ROE and you get
(1-b)(roe)/r-g AKA (ROE-g)/(r-g)
this is justified price / book (leading).

KungFuPanda

Look at page 242, Equity, Schweser
It states there that justified P/S= net profit margin * justified trailing P/E

fishmarket

page 518, CFAI vol 4