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Basic Question 3 of 8

The P/BV ratio is positively related to ______.

I. dividend payout ratio
II. return on equity
III. required rate of return
IV. earnings growth rate
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User Contributed Comments 4

User Comment
mysking why not? as g = b x ROE, if P/B is proportional to ROE then it is also proportional to g.

imply P/B always positively correlated to the growth rate?
ehc0791 From the equation, it depends on ROE and r, if ROE > r, P/BV has positive relationship, otherwise, negative; because g is subtracted from both numerator and denominator
Lavay True
sahilb7 Interesting!
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

Learning Outcome Statements

calculate and interpret alternative price multiples and dividend yield;

calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;

explain and justify the use of earnings yield (E/P);

describe fundamental factors that influence alternative price multiples and dividend yield;

calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals;

calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;

evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;

calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation;

calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;

explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition;

calculate and interpret EV multiples and evaluate the use of EV/EBITDA;

CFA® 2025 Level II Curriculum, Volume 4, Module 23.