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- Topic: The earnings multiplier (P/E)
| Author | Topic: The earnings multiplier (P/E) |
|---|---|
| phanthithutra @2015-01-01 18:44:48 |
A company's ROE is greater its required ROE. P/E for that company 's stock is most likely to be positively related to the earning retension rate. Pls kindly tell me why P/E is positively related to the earning retension rate |
| Mikehuynh @2015-01-10 21:10:05 |
I give it a try: P/E = Payout ratio/(k-g) (1) g = growth rate = (1 - dividend payout rate)*ROE => if the retention increases + ROE is greater than required => growth rate will increase => denominator of (1) will be smaller => P/E will be greater. So P/E is most likely to be positively related to the earning retention rate. You can plug in real number since it's easier to see phanthithutra |
