Is forward p/e calculated as current div/forward looking EPS over r-g (so D0/EPS1 / r-g)
or is it D1/EPS1 / r-g?
I definately get how to calc EPS0 and EPS1, but I’m unsure if I should grow the divident and use it in the forward p/e formula or leave it as ‘current dividend over forward looking EPS’…
or in a situation where you have the price given or calculated from the trailing P/E, then you can use:
P/E1 to get the leading EPS, which will be lower when compared to the trailing EPS.
We assume that the retention ratio stays the same i.e D0/E0 = D1/E1 = 1 - b so earnings grow at the same rate as dividends.
D1/E0 = (D0(1+g)/(r-g))/E0 = (D0/E0)(1+g)/(r-g) = (1-b)(1+g)/(r-g)
DI/E1 = (D0(1+g)/(r-g))/(E0(1+g) = (D0/E0)/(r-g)