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4- The table below contains information about SIM’s company
4- The table below contains information about SIM’s company. Provide expected share prices using each of the three price ratio approaches we have discussed.
Price ratio analysis for SIMS company (Current stock price: $40)
Earnings Cash Flow Sales
Five-year average price ratio 25 (P/E) 7 (P/CF) 1.5 (P/S)
Current Value per share $2 (EPS) $6 (CFPS) $30 (SPS)
Growth Rate 10% 16% 14%
Expert Solution
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P/E ratio |
P/CF ratio |
P/Sales ratio |
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Five year average ratio |
25 |
7 |
1.5 |
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Value |
Growth rate |
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EPS |
2 |
10% |
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CFPS |
6 |
16% |
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SPS |
30 |
14% |
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When we are calculating the expected value we will use the growth rate |
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First by P/E ratio (price to earning ratio) |
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Price = expected earning * average P/E ratio |
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= (2*1.1)*25 = 55.00 |
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Price to cash flow (P/CF RATIO) |
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Price = expected cash flow * P/CF ratio |
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Price |
(6*1.16)*7 |
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= |
48.72 |
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Price to sales per share ratio (P/SPS RATIO) |
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Price = expected sales per share * P/Sales ratio |
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Price |
(30*1.14)*1.5 |
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= |
51.30 |
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