 # Intrinsic / Franchise PE

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?

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

(1/r - 1/roe) I believe

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

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

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

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

Anyone have a trick to remembering the relationships?

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.