This is from McKinsey’s Book Valulation: Measuring & Managing the Value of Companies, 6th Edition
I don’t understand how they get change in P/E in traditional approach as 5.5
Old P/E = 8 New P/E = 8.4
Change in P/E percentage = (8.4 - 8)/8 = 5
It should be 5 not 5.5 - what am I doing wrong here?
There is a possibility of a rounding error, where the P/E 1 year later = 8.44 (but the 2nd decimal place is not shown).
No, I checked that also. Rounding error is there but in a different direction.
Actual P/E = 112.5/13.4 = 8.3955 which has been rounded to 8.4
(Earnings is 13.4 - it’s given in a previous table)