CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Justin is trying to estimate the trailing P/E of IBM. The current stock price is $86.2. Justin gathers the following data from the company's financial statements:

He finds out that a part of expenses during the most recent two quarters can be attributed to the IBM's sale of its Hard Disk Drive (HDD) business to Hitachi. This sale and some other company actions that are not expected to repeat in the future decreased IBM's net income by a total of $770MM in the second and third fiscal quarters of 2002. On a per share basis the negative impact on the last twelve month's EPS is $0.46.

IBM's current fiscal year ends in December 2002. The trailing P/E of IBM should be ______.
Correct Answer: Since these extraordinary items are not expected to repeat in the future, excluding them will make the P/E estimate more relevant for the purpose of relative valuation.

Justin calculates the underlying P/E ratio by dividing the current market price of IBM $86.2 by the last twelve months' underlying EPS $3.32.

User Contributed Comments 4

User Comment
danlan2 Second row comes from Net Income (sixth row) and Extraodinary Items (fourth fow).
rt2007 P/E = 25.96
mch930 P/E = Stock Price /(EPS - non-recurring per share impact)

P/E = 86.2/[2.86-(-0.46)] = 25.96
ashish100 Mch tyty! multi currency horizon?
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