Did you guys notice there are a bunch of “justified” price per X , (e.g. justified P/B, justified P/S, justified P/CF ratio… etc) near the end of SS 11… there are really few examples in them but the forumlas just looked weird to me… do we really need to memroize all these forumlas?
justified only means based on fundamentals or DCF analysis, all those formulas can be derived from P/E = PayoutRatio/(k-g) Divide by BV, multiply by E -> P/BV = E/BV*PayoutRatio/(k-g) = ROE*PayoutRatio/(k-g)=(ROE-g)/(k-g) Divide by Sales, multiply by E -> P/S = E/S*PayoutRatio/(k-g) = ProfitMargin*PayoutRatio/(k-g) you don’t have to memorize those formulas, they can be derived.
Yes, you should know them by heart. You will definitely see questions related to P/E, P/BV, and P/S.
I don’t have my notes next to me, but isn’t P/S: PM(1-DPR)(1+g)/r-g or Profit Margin*Retention Rate*(1+g)/r-g
Yup. Edit: Or PM x trailing p/e.
Don’t forget tangible P/E either: 1/r
Niblita75 Wrote: ------------------------------------------------------- > I don’t have my notes next to me, but isn’t P/S: > > PM(1-DPR)(1+g)/r-g > or > Profit Margin*Retention Rate*(1+g)/r-g you are right, i forgot (1+g) because i messed up with trailing E and leading E. However, it’s not retention but payout rate.
Isn’t 1-DPR = rentention rate? Also: (P/S)/Profit Margin = Trailing P/E Trailing (P/E)/(1+g) = Leading P/E
i agree that 1 - dpr = retention rate, but it’s not 1 - dpr but dpr in the formula because D1 = E0*dpr*(1+g) P/Sales = (E0/Sales)*(1+g)*dpr/(r-g)=TrailingPM*(1+g)*dpr/(r-g)
Yea, I got confused. Thanks for the correction. I kept seeing (1-b) in the formulas and that confused me for a second.
thanks for pointing this out,… i ll re-read this section