average ROE method

[archived_user]

if using the average ROE method, I know we calc normalized EPS in 2008= av ROE* beg book value of EQ in 2008.
My question is- if they gave us a balance sheet at the beginning AND one at the end of 08, would we take the average BVPS or continue multiplying average ROE by beginning book value per share?
thanks!

 

[archived_user]

Ideally, one should multiply average ROE with the average BVPS to get the normalized EPS. You may try both the methods and if only one of the solutions is present in the options, then it would make the choice very easy.
But if you find both the choices, then I think it would be better to go with the curriculum book formula even though average ROE*average BVPS makes more sense. But I don’t think that you would find such discrepancies in the question on the exam.

 

[archived_user]

cool thanks!