- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 23. Market-Based Valuation: Price and Enterprise Value Multiples
- Subject 2. Price to Earnings: Determining Earnings
CFA Practice Question
Chris is working on relative valuation analysis for Toyota. Below is the data he gathered for this purpose:
Under the method of average return on equity, Toyota's EPS should be ______.
Correct Answer: $1.07
Average ROE method gives EPS = Current BVPS x Mean ROE = $5.24 x 0.204 = $1.07.
Note that historical EPS method gives the normalized figure around $5. Such huge difference in normalized earnings per share can be explained by a significant fall in book value per share during the last economic cycle.
User Contributed Comments 3
| User | Comment |
|---|---|
| katybo | I think BVPS should be 4.08. P/BV is normally a trailing ratio and 2005 is an estimation... |
| MasterD | If you used 4.08 then you would use the Ave ROE not including 2005's 10.8% |
| bbadger | Excluding 2005 estimates, Mean ROE = 21.4666%, times 4.08 = 0.87584 EPS |