extrapolating G from trailing justified PE

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papapapaolo

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Hi everyone,
quick question:
how can I extract the growth rate from the trailing PE formula?
as the fomula is: payout*(1+g) / r-g
how do I extract g?
thank you very much in advance
Paolo
 
PE=(1-b)(1+g)/(r-g)
The high school mathematical process looks like this
Take (r-g) to the other side and also open up all brackets
PE(r-g)=(1-b)(1+g)
PEr-PEg=1+g-b-bg
now collect together on one side all terms that have a “g” in them
PEr-1+b=g-bg+PEg
separate “g” from the pack
PEr-1+b=g(1-b+PE)
g=(PEr-1+b)/(1-b+PE)
This looks like a mess but in the exam all other variables will be given except “g” so plug all figures into the original formula and then extract “g” as it will be easier.
 
it’s not a mess.
great thanks.
“b” alone is the retention ratio right?
thanks
Paolo
 
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