Franchise P/E

CFA Level II
#1

Is Franchise P/E: Observed - Base P/E where (Base P/E = 1/r) or FF * G where FF = (ROE - r)/(ROE * r) G = g/(r-g)

#2

both are the same… (or should work out the same) two ways to bell the same cat.

#3

they are not the same. 2nd formula uses only fundamentals. 1st uses market price. what if the shares were way over valued and Observed P/E is 10000000000

#4

Sorry - I meant to say Justified P/E - Base P/E. Justified = (1-b)/(r-g) Base = (1/r) Remaining = FF*G = (1/r - 1/ROE) * (g/(r-g))

#5

so, in the stalla book it first says Franchise PE = Observed - Base then gives the other formula. is the first one just wrong or am i missing something?

#6

I always use FF*G FF = (1/r)-(1/roe) G = g/(r-g)

#7

Oh my god…there are two components…FF*G is the growth component !

#8

no, G is the Growth component and FF is the franchise component

#9

I always have to catch myself when they ask about the Franchise Factor or the Franchise P/E Value. I always need to remind myself that these are different: Franchise Factor = (ROE - r) / (ROE*r) or 1/r - 1/ROE and Franchise P/E Value = FF * G