CFA Practice Question

There are 201 practice questions for this study session.

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 historical average EPS, Toyota's EPS should be ______.
A. $5.04
B. $1.10
C. $0.86
Explanation: Historical EPS method gives the normalized figure around $5. Note that average ROE method gives EPS = Current BVPS x Median ROE = $5.24 x 0.21 = $1.1. 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 6

User Comment
MGM13 I thought it was the Current BVPS times Median ROE (5.24*.21 = 1.1). The answer doesn't make sense to me. What am I missing here? Thanks.
art1997 Average = MEAN
volkovv Historical Method: use simple Mean EPS = 5.04, B is the answer
Average ROE Method: Current BVPS x Median ROE = 5.24 * .21 = 1.10 (if the question asked about average ROE method, C would been the answer)
volkovv Normalized EPS can also be calculated by Total Assets * Average ROA
kwanlo3 this question will be more challenging if we are asked to use the "appropriate method"
cminor This is not a great question because you are supposed to use the average from the most recent "business cycle" which is not clear in questions like this.
You need to log in first to add your comment.