- 30 -
earnings over 5 years, and equity from the companies’ financial
records. The median figures were as follows: P/E = 11.1, P/E5 =
13.4, and P/Eqt = 1.316.18
Mr. Egan’s method of calculating the P/D ratio was more
complex. First, he calculated three ratios for each of the
comparable companies: P/D, dividends/5-year earnings (D/E5), and
dividends/1992 earnings (D/E).19 The latter two were also
computed for FNBW. He ranked the seven comparable companies in
ascending order by P/D ratio. Mr. Egan believed that in general
with respect to his sample, the P/D ratio was inversely
proportional to the other two ratios. The D/E5 and D/E ratios of
FNBW were each the second highest in the list, which indicated to
Mr. Egan that the P/D ratio of FNBW should be the second lowest
in the list. Thus, Mr. Egan examined the lowest and second
lowest P/D ratios of the companies on the list and estimated
FNBW’s P/D ratio to be between the two. His result was a P/D
ratio of 25.
Using the four ratios, he calculated values for FNBW as
follows:
P/E ratio of 11.1 x 1992 earnings of $1,423,000 = $15,795,000
P/E5 ratio of 13.4 x 5-year earnings of $1,254,000 = $16,804,000
P/Eqt ratio of 1.316 x 1992 equity of $11,249,000 = $14,804,000
P/D ratio of 25.0 x dividends of $640,000 = $16,000,000
18 By comparison, Mr. Hitt computed a P/E ratio of 14 and a
P/Eqt ratio of 1.6, based on his comparables.
19 “Dividends” here means the previous year’s dividends.
Page: Previous 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 NextLast modified: May 25, 2011