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Basic Question 1 of 4

Since D/P = (r - g) / (1 + g), and P/CF = (1 + g) /(r - g), therefore D/P = CF/P. True or False?

User Comment
HenryQ Good question!
ikaneng which also means that if the 2 g's are equal, then D/P = CF/P?
gnacinka dividend is a kind of CF, but different that they mean
NIKKIZ Mathematically, 1+g/r-g is not equal to r-g/1+g...
NIKKIZ Or am I incorrect?
sogah very good question lol
endurance KA-boom ... very useful for understanding the concepts
JMBrown NIKKIZ,1+g/r-g is P/CF and they are comparing D/P and CF/P using the reciprocal. So it would actually be D/P=r-g/1+g and CF/P=r-g/1+g only with varying definitions for g.
You have a wonderful website and definitely should take some credit for your members' outstanding grades.

Colin Sampaleanu

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® 2024 Level II Curriculum, Volume 4, Module 25.