In the justified P/B ratio, Stalla uses ROE subscript 1 in the formula as follows: P/B = (ROE - g) / (r - g) If we’re at t=0, does that mean we grow ROE by the growth rate? Can anyone confirm?
are you sure it’s right? i think it should be ROE at t=0, instead of ROE subscript 1.
I think (roe-g) / (r-g)
No, I’m not really sure. I’m just sent an e-mail to Stalla to clarify.
Po / Bo = (ROE -g ) / (r - g) ------ equation (1) basically this is derived from GGM, i.e. Po = E1 * (1 - b) / (r - g) substitute E1 = ROE x Bo and b = g/ROE and you get Haven’t seen any of Stalla but they might be interpreting E1/Bo as ROE1