When calculating Tangible P/E as part of the Intrinsic P/E question, if you are given real required return, inflation, and inflation flow through percentage, do you EXCLUDE the flow through percentage in the calculation? Just did a Qbank question (88631 part 1 if youre curious) where they excluded it and was confused. I’m now thinking that the flow through % is only included in the denominator when calculating Leading P/E, but its excluded when calculating tangible P/E (which is thus simply 1/(real rate + inflation rate)0. Please let me know if you agree.
the question would state, with the effect of inflation what is the PE, absent that, calculate it as you would for the tangible PE as 1/r
im not sure i agree. the problem in qbank adds the inflation rate but doesnt adjust it for the inflation flow through. so you do include “the effect of inflation”.
r = rr + I and tangible P/E = 1/r
yes cpk. that is my belief. r = rr + I —> and I is not adjusted for inflation flow through Inflation flow through is included only in the Leading P/E formula, and not in the tangible P/E formula.