I’ve done these calculations for our example company. These two values will help us to calculate the P/E ratio. We will also record the share prices on the date of reporting of the quarterly numbers. To do it, we will record the EPS of the last ten quarters. Here again, we will try to establish the PE trend. A company with rising EPS and a high ROIC can continue to maintain or even improve its PE. To do it, we must first review the above two numbers (EPS and ROIC). Future PEįorecasting future PE is not easy. ROIC For The Formula = ROIC Trend * (1 – 25%) = 17.1% #c.
That is why I’ve used a correction factor of 25%. Using a lower number than what the trend is suggesting will be better.
When we see so far ahead in the future, errors can creep in. Hence I’ve considered it for the calculation.īut before putting the number in the formula, we must correct the value.īecause the ROIC number is used as a growth rate of EPS for the next ten years. From the trend, it looks like the value of 22.8% is a stable number. Again, important here is to note the ROICs trend line.
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