Intrinsic / Franchise PE

Smarshy · May 23, 2008, 5:10pm

I think I’m overthinking this or I’m just confused. What exactly is the formula for franchise pe? I know intrisic PE is 1/r For franchise pe, FF X G FF = what exactly? Is it (1/r - 1/roe), or just 1/roe?

ruckmani · May 23, 2008, 5:11pm

franchise p/e = (1/r -1/roe0* growth factor (1/r - 1/roe) is called franchise factor.

LanceTX · May 23, 2008, 5:12pm

(1/r - 1/roe) I believe

Smarshy · May 23, 2008, 5:13pm

ok thanks. And G is simply g/r-g?

deep2002 · May 23, 2008, 5:17pm

Smarshy Wrote: ------------------------------------------------------- > ok thanks. And G is simply g/r-g? Correct!

Niblita75 · May 23, 2008, 5:19pm

Isn’t tangible P/E = 1/r Intrinsic P/E = Tangible + FF*G

deep2002 · May 23, 2008, 5:22pm

You are correct Nibs, FF = 1/r - 1/ROE G = g/r-g

elparko · May 23, 2008, 5:26pm

Anyone have a trick to remembering the relationships?

tom18606 · May 23, 2008, 8:09pm

Yes, trick is there. Franchise value represents growth value, which means your ROE must be higher than “r” to get positive growth value. whatever higher should be second in a fraction formula, otherwise negative value. Eg. r=10 and ROE =15, ROE>r, ROE should go second. So, FF = 1/r - 1/ROE Easy way is FF = ROE-r/ROE*r, which will give the same value.