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Hi Sir,
I am confused.
For valuation of company, we can use share price = P/E * EPS. However, to find total value of the firm (after takeover), I noticed that we have to use PAT of both companies + synergy * P/E ratio to get the firms total value. I do not understand why PAT * P/E = total firm value? It is because PAT is the total earnings of the firm * price of share/Earnings per share? I am confused and hope u can enlighten me.
If we use the PE ratio to value the shares, then we use the earnings available to shareholders.
The earnings available to shareholders is the profit after tax and after interest.
If you are calculation the price per share you can use the earning per share. If you are valuing the total equity then you can use the total earnings.
Hi Sir,
1) share price = P/E * EPS
= price of share/earnings per share * earnings per share2) total value of firm = P/E * total earnings of the firm. But in this case the P/E is it still price of share/Earnings per share or Price of share/total earnings?
Thanks for your help 🙂
Think about it!
If the price of one share is the PE multiplied by the earnings for one share, then the price of all of the shares is the PE multiplied by the earnings for all the shares 🙂
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