Justified P/S

CFA Level II
#1

I have a small doubt. In the TCC equity topic test there is a question to calculate justified P/S. They have provided us with the projected Dividend payout ratio but still they multiply it with (1+g) to calculate justified P/S. Why so? The ratio given is ‘projected’ not current. Thanks.

#2

The justified P/S ratio is the profit margin times the justified trailing P/E ratio; the latter has (1 − b)(1 + g) in the numerator.

I wrote an article on justified ratios that may be of some help here: http://www.financialexamhelp123.com/justified-ratios-price-multiples/

Full disclosure: as of 4/25 I’ve installed the subscription software on my website, so there’s a charge for viewing the articles.

#3

Understood, thank you.

#4

You’re welcome.