In one of the Equity questions on the CFA website, the one called Alahtab, in the very first questoin, when calculated ROE, why are they calculating it as [2013 Net Income / 2013 Equity Value]. Shouldn’t it be 2012 Equity value instead? Would really appreciate some assistance on this one, very confused. Maybe this is just an error…
Why are you so convinced it should be 2012 equity value? The question asks for “the intrinsic value as of 2013”
My interpretation of that is to use the equity AS OF 2013.
Please find the below link on ROE for the same case of Alahtab
http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91331116
That link didn’t really provide any answers.
It’s just that we are supposed to be calculating a sustainable growth rate based on ROE and the retention ratio. The retention ratio is given, but ROE cannot in my view be NI 2013 / Book Value 2013. It’s counterintuitive, because the NI in 2013 will actually form a part of the book value in 2013…
Just did this problem set… I agree. Shouldnt it be 2013 Net Income / 2012 Ending Equity?
I also agree, but I didn’t get an available answer so I switched it to 2013 Equity and then one of the answers appeared… Would be nice to get some feedback on that as well