extrapolating G from trailing justified PE

Hi everyone,

quick question:

how can I extract the growth rate from the trailing PE formula?

as the fomula is: payout*(1+g) / r-g

how do I extract g?

thank you very much in advance



The high school mathematical process looks like this

Take (r-g) to the other side and also open up all brackets

PE(r-g)=(1-b)(1+g) PEr-PE g =1+ g -b-b g

now collect together on one side all terms that have a “g” in them

PEr-1+b= g -b g +PE g

separate “g” from the pack

PEr-1+b= g (1-b+PE) g=(PEr-1+b)/(1-b+PE)

This looks like a mess but in the exam all other variables will be given except “g” so plug all figures into the original formula and then extract “g” as it will be easier.

it’s not a mess.

great thanks.

“b” alone is the retention ratio right?



Yes. b= retention ratio and 1-b is the payout ratio