Question

Assume a company has a payout ratio of 42 percent, a profit margin of 7 percent, a cost of equity of 15 percent and a growth rate of 3.5 percent. Do not round intermediate calculations. Round your answers to three decimal places.

What is the forward price–sales multiple?

What is the trailing price–sales multiple?

Answer 1

1.

We know that,

Forward Price Sales multiples = Profit margin * payout /(r -g)

= 0.07 * 0.42/(0.15 - 0.035)

=0.2556 Answer

2.

Trailing Price Sales multiples = (1 + growth rate) * profit margin * payout

/(r -g)

= (1 + 0.035)*0.07*0.42/(0.15 - 0.035)

= 0.2646 Answer