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)
both are the same… (or should work out the same) two ways to bell the same cat.
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
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))
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?
I always use FF*G FF = (1/r)-(1/roe) G = g/(r-g)
Oh my god…there are two components…FF*G is the growth component !
no, G is the Growth component and FF is the franchise component
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