CFA Practice Question

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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
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