Can anybody elaborate on the following formula? (Schweser 4 S.257) E1 = B0 x ROE It would be straightforward if instead of B0 you’d have the amount of equity. It appears that B0 is an approximation of the equity, but that doesn’t always have to be true, right? I would assume that book value can differ substantially from the true equity value… Anyways, it would be great if somebody could provide some insight.
Don’t have my book with me, but I believe this is the formula for normalized earnings? Take the average ROE and multiply it by the last Book Value, and that gives you earnings. Anyone confirm?
clean surplus, it is your friend