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**CFA Practice Question**

The P/S ratio is positively related to ______.

II. profit margin

III. required rate of return

IV. earnings growth rate

I. dividend payout ratio

II. profit margin

III. required rate of return

IV. earnings growth rate

Correct Answer: I, II and IV

P/S = Net Profit Margin (1 - b) (1 + g) / (r - g).

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**User Contributed Comments**
3

User |
Comment |
---|---|

weiw |
it is not clear that the divident payout ratio is positively related to P/S ratio if you put it into the mathematical way. Remeber 1-b still affects g. |

sahilb7 |
Shouldn't it be negatively correlated with r? |

Omi1987 |
if r goes up then P/S comes down. It is negatively correlated. |