Price multiples

CFA Level I Equities
#1

Hi Guys, does anyone have any idea how to do the calc for the below question please? Without the shares outstanding, I’m not sure how to do the calc, i.e. isn’t price/earnings ratio: price / eps?

Gourmet and Company has the following information:

  • Current market value = $250m
  • Current book value = $225m
  • Sales = $750m
  • Earnings = $75m
  • Cash flow = $125m
  • Stock price = $7.50

Q) Which of the following statements regarding Gourmet and Company is most accurate?

  • A. The price/book ratio is 0.90.
  • B. The price/sales ratio is 0.33.
  • C. The price/earnings ratio is 33.3.

Answer: B

#2

P/B = $250m / $225m = 1.11

P/S = $250m / $750m = 0.33

P/E = $250m / $75m = 3.33

#3

^to add on to this, in case you don’t understand the reason he used Market value

Market value = Share price x Number of Shares outstanding

So, 250 / 7.5 = 33.33 million shares

Price per share / Book value per share = 7.50 / (225 / 33.33) = 1.11

Price per share / Sales per share = 7.50 / (750 / 33.33) = 0.33

Price per share / Earnings per share = 7.50 / (75 / 33.33) = 3.33

#4

Ohh myy! Of course it is!! Thank you guys, very helpful :slight_smile:

#5

Good to hear!