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Basic Question 2 of 7
Justin is trying to estimate the trailing P/E of IBM. The current stock price is $86.2. Justin gathers the following data from the company's financial statements:
He finds out that a part of expenses during the most recent two quarters can be attributed to the IBM's sale of its Hard Disk Drive (HDD) business to Hitachi. This sale and some other company actions that are not expected to repeat in the future decreased IBM's net income by a total of $770MM in the second and third fiscal quarters of 2002. On a per share basis the negative impact on the last twelve month's EPS is $0.46.
IBM's current fiscal year ends in December 2002. The trailing P/E of IBM should be ______.
User Contributed Comments 4
| User | Comment |
|---|---|
| danlan2 | Second row comes from Net Income (sixth row) and Extraodinary Items (fourth fow). |
| rt2007 | P/E = 25.96 |
| mch930 | P/E = Stock Price /(EPS - non-recurring per share impact) P/E = 86.2/[2.86-(-0.46)] = 25.96 |
| ashish100 | Mch tyty! multi currency horizon? |
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Learning Outcome Statements
calculate and interpret alternative price multiples and dividend yield;
calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;
explain and justify the use of earnings yield (E/P);
describe fundamental factors that influence alternative price multiples and dividend yield;
calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals;
calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;
evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;
calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation;
calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;
explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition;
calculate and interpret EV multiples and evaluate the use of EV/EBITDA;
CFA® 2025 Level II Curriculum, Volume 4, Module 23.