Question

what is the equity value using the PE Methodolgoy

Deals Enter prises Tin equity valuationv FIN300 - Equity Valuation Exercise Bears Enterprises (ticker: BE) is engaged in the business of making athletic shoes. a.lt pays a dividend of $150 per quarter, some people believe it will stay the sanne and others believe it will grow by 4% per year b. Other shoe manufacturers trade in the market for 8.0x ERITDA C. Other similar companies also trade with a PE multiple of 18x d.BE has $100mm in short term debt and $50mm in long term debt: it pays interest at an average annual rate of 4%. e. Assume a discount rate of 9%. f. BE reported $900 million in Revenue and Net Income of $25mm in its most recent year g. On its balance sheet, BE has $75 million of Accounts Receivable, $100 million of inveetory, $25 million of Accounts Payable, and $1 50 million of Fixed Assets (PP&E) h. BE's fixed assets were recently appraised at a value of $300mm i. It reported $5mm in depreciation last year. j. BE trades on NASDAQ and closed yesterday at $90 k. BE has 15 million shares authorized; it has l million treasury shares; it has 11 million issued shares. l.IE has a total tax rate of 25%. Diwidend Growingkae Liquidation value EBITDA Market Value PE Method method Dividend MacBook A

Answer 1

Price Earning Ratio or P/E Ratio is important to value a firm. It shows an investor how much paying to Earn $1 from that company's stock.

PricePerShare Earning PerSharelEr P/ E Ratio =

It is a ratio between "Market Price per Share" and "Earning Per Share(EPS)".

Example:- Today Apple Inc. stock was trading at $185.72. And, Apple's Earning Per Share or EPS is $11.89. So, its Price Earning Ratio will be =($185.72 / $11.89) = 15.62

So, This shows, Earning $1 from Apple Inc. stock; investors need to pay $15.62.

From here we can also understand the yield of the stocks.

Yield = × 100 P/ERatio

For Apple Inc. Stocks, Yield is = (1/15.62) * 100 = 6.40%

So, From here we can understand that if P/E ratio is lower, then Yield from that stock will be higher and that's why value of the stock will be higher.

But, We need to understand that this process of valuation is not 100% right. Because, this valuation process does not talk about the growth of the stock. That's why many investor uses "PEG Ratio" rather than "P/E Ratio".

PEGRatioERatio Growth Rate

Hope it helps! Good Day.