The justified P/E ratio is a variation of the price-to-earnings (P/E) ratio. The metric is justified because it takes in a firm’s fundamentals, and then justifies them by using the Gordon Growth model. This approach helps you better understand the relationship between the P/E ratio and its fundamentals. The justified P/E multiple is a function of three factors—the expected dividend payout ratio, the required rate of return, and the expected dividend’s growth rate. You can easily compare this ratio with other metrics, such as the standard P/E and the forward P/E.
This open-access Excel template is a useful tool for bankers, investment professionals, corporate finance practitioners, portfolio managers, and anyone preparing a corporate presentation.
Justified Price-to-Earnings (PE) Ratio is among the topics included in the Corporate Finance module of the CFA Level 1 Curriculum. Gain valuable insights into the subject with our Corporate Finance course.
You can also explore other related templates such as—Return on Equity (ROE), Gordon Growth Model, and Cost of Equity.