Prethodno priopćenje
Price/Earnings Ratio Model through Dividend Yield and Required Yield Above Expected Inflation
Emil Mihalina
; Agram Invest d.d.
Sažetak
Price/earnings ratio is the most popular and most widespread evaluation model used to assess relative
capital asset value on financial markets. In functional terms, company earnings in the very long term can be
described with high significance. Empirically, it is visible from long-term statistics that the demanded (required)
yield on capital markets has certain regularity. Thus, investors first require a yield above the stable inflation
rate and then a dividend yield and a capital increase caused by the growth of earnings that influence the
price, with the assumption that the P/E ratio is stable. By combining the Gordon model for current dividend
value, the model of market capitalization of earnings (price/earnings ratio) and bearing in mind the influence
of the general price levels on company earnings, it is possible to adjust the price/earnings ratio by deriving
a function of the required yield on capital markets measured by a market index through dividend yield and
inflation rate above the stable inflation rate increased by profit growth. The S&P 500 index for example, has
in the last 100 years grown by exactly the inflation rate above the stable inflation rate increased by profit
growth. The comparison of two series of price/earnings ratios, a modelled one and an average 7-year ratio,
shows a notable correlation in the movement of two series of variables, with a three year deviation. Therefore,
it could be hypothesized that three years of the expected inflation level, dividend yield and profit growth
rate of the market index are discounted in the current market prices. The conclusion is that, at the present
time, the relationship between the adjusted average price/earnings ratio and its effect on the market index
on one hand and the modelled price/earnings ratio on the other can clearly show the expected dynamics and
course in the following period.
Ključne riječi
price and seven-year average earnings ratio; expected inflation; stable inflation; dividend yield; profit growth; modelled price/earnings ratio
Hrčak ID:
57837
URI
Datum izdavanja:
5.7.2010.
Posjeta: 2.754 *