Hi, on the justified P/B multiple, can someone please explain how E = B X ROE? Does B stand for book value?
How does the justified P/B ratio = (ROE - g) / (r-g) ?
Thanks!作者: bigredhockey55 时间: 2011-9-21 12:34
B is earnings retention rate...
Edited 1 time(s). Last edit at Thursday, March 13, 2008 at 08:35PM by planner.作者: wizofoz 时间: 2011-9-21 12:49
I should've known that. .it def. makes sense logically. . .I got confused b/c little b is used to represent retention rate elsewhere. .
But how does justified P/B = (ROE - g) / (r-g)?
Thanks planner!作者: joehogue 时间: 2011-9-21 13:21
Don't have the answer in front of me, but if you look at the CFAI text in the footnotes it shows the transformation of the Gordon Growth to P/B.作者: defour44 时间: 2011-9-21 13:37
B should be book value in that formular.作者: Viceroy 时间: 2011-9-21 13:53
good catch dispatra...
g=ROE x b where b = retention rate...作者: yospaghetti 时间: 2011-9-21 14:09
Yes.
All of P/E, P/B, P/S formular can be derived from GGM. You need to plug in g = ROE * b, and E = B X ROE to GGM model. I think it is in the CFAI book as previous poster said.作者: yuoska 时间: 2011-9-21 14:25
Thanks everyone. I've been relying mostly on Schweser books, which have been helpful, but for a deeper understanding I should def. be looking at the CFA books.作者: ohai 时间: 2011-9-21 14:41
I will put one here as a practice. Hope it is all good.
P0 = (V1)/r-g;
maratikus Wrote:
-------------------------------------------------------
> good explanation, disptra.
>
> another formula that is helpful is
>
> P/B = (ROE-g)/(r-g) = (ROE-r+r-g)/(r-g) = 1 +
> (ROE-r)/(r-g)
>
> P/B > 1 if ROE > r
Nice. This proves when there is dividend RI model and GGM model are same.
It seems the key assumption to make these 2 equal is g = b * ROE, everything else is by definition.作者: genuinecfa 时间: 2011-9-21 15:29
yes, the key assumption is perpetual constant growth g = b*ROE
