Financial Valuations

Question 1

Constant Growth Dividend Discount Model

Answer 1

Pt = D(t+1) / R -G

where :

P = Current Price (at period t)
D (t+1) = Dividend one year after period t
R = Required return
G = (sustainable) Growth rate

Question 2

Price - Earnings Ratio (PE Ratio)

Answer 2

P / E

where:

P = Price or value today
E = Earnings Per Share expected in one yr (next 4 Q's)

Question 3

To Calculate Current Value of A stock with PE

Answer 3

P = (P / E1 ) x E1

where:

P = Price or Value Today
E1 = EPS expected in one yr.

Question 4

PEG Ratio - measures that shows the effect of earnings growth on a company’s PE. (assumes linear relationship)

Answer 4

PEG = (P / E) / G

P = Price or Value Today
E1 = EPS expected in one yr.
G = Growth rate (100 x expected %)

Question 5

Valuing an Equity with the PEG Ratio

Answer 5

P = PEG x E1 x G

P = Price or Value Today
E1 = EPS expected in one yr.
G = Growth rate (100 x expected %)