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) ?
Po = D1/r-g
Since we are calculating BV which comes from E1 = Bo x ROE (remember B here is the BVPS not ret rate)
If we divide both sides by Bo
Po/Bo = (D1/Bo)/r-g
from the above formula-
= ((D1 x ROE)/E1)/r-g
Notice that E1 is there, therefore we have not used ( x 1+g). If Eo had been in the formula, we would have added a term ( x 1+ g) like what we do in Po/So ratio
Now, D1/E1 is the payout ratio or 1-b
= ((1-b) x ROE )/ r-g
maratikus Wrote:
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> 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.
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.
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.
发表于 2011-9-10 04:26
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