Hello.
I am not sure if I am correct.
P/BV, net income, assets, liabilities are given. The question is about P/E.
My solution:
P/BV=price of one share / book value per one share /* the number of stock (number)
P/BV=price of one share*number/book value= price*number/(assets-liabilities)
price*number=P/BV * (assets-liabilities)
P/E= price of one share/ earning per share /the number
P/E = price*number/earnings = (P/BV * (assets - liabilities)) / net income
Is it correct?
Assets - Liab = Equity ==> which is the Book Value of the firm. P/BV * BV = P P/Net Income = P/E … Yes, you have gotten it right
Hypothetically Assets = 100,000 Liabilities = 50,000 NI = 10,000 P/BVPS = 2 Suppose No. of shares = 25,000 BV = 100,000 - 50,000 = 50,000 BVPS = 50,000/25,000 BVPS = 2 P/BVPS = 2 means that P = 4 EPS = 10,000/25,000 EPS = 0.4 P/E = 4 / 0.4 P/E = 10 According to your analogy P/E = [P/BVPS*(Assets - Liabilities)]/NI P/E = 2*(100,000 - 50,000)/10,000 P/E = 100,000/10,000 P/E = 10 .: You are correct!