Justified P/B Ratio Formula

thunderbird · May 23, 2016, 8:00am

Could someone help me derive the formula for Justified P/B ratio which is (ROE-g)/(r-g) from the equations of [g=ROE*b] and [E = BVPS *ROE]

krokodilizm · May 23, 2016, 8:15am

thunderbird · May 23, 2016, 9:17am

great. thanks

olajideanuoluwa001 · May 23, 2016, 9:59am

There are 3 variations to it.

P/B = B0 + ((ROE - r)/r-g}*B0

P/B = {1 + (ROE - r)}*B0

P/B = {(ROE - g)/(r-g)}*B0

All 3 will give you the same answer.

Cheers.