A firm has a justified price-to-sales ratio of 2.0 times, a net profit margin of 5%, and a long-term growth rate of 4%. The justified leading P/E is closest to:
A. 34.8.
B. 38.5.
c. 40.0.
on the shitter without a calculator. trailing is 40 so leading should be B.
dreary with all these heads up review you are doing, you are going to score 100% on equity.
heres my take on this problem.
p/s = 2.
p/e =
net profit margin = eps / sales = .05
so you have eps / sales = .05 and price / sales = 2.
so just do price / sales * sales / eps = 2 * 1/.05 = 40. this is trailing pe.
trailing = leading * 1 + g
so leading = 40 / 1.04
38.5 B
iyou can derive it with the P/S formula which is : E/S * Leading P/E * ( 1+g )
2/0.05/1.04 = 38.5
B
Price-to-sales ratio = E/S*(1+g)(1-b)
r-g
= E/S*(1+g)*Justified leading P/E
2 = 0.05*1.04*Justified leading P/E
2 = 0.052*Justified leading P/E
2/0.052 = 38.46 = 38.5 = Justified leading P/E