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Practice Exams, Volume 2, Exam 3, PM, Q100

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!

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.

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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).

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

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page 518, CFAI vol 4

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