Economic P-E
Economic P/E[1], or economic price-to-earnings ratio, is an advanced valuation multiple originally created by Deutsche Bank's equity research team in 1996. It can be thought of as a comparison of the valuation of a company's assets (measured by economic price-to-book) with the profitability of those assets (CROCI). It is extensively used within DWS for systematic stock selection.[2]
The metric was developed in order to allow investors to compare companies in different sectors and countries with a high degree of confidence.
Formula[edit]
Where:
- Enterprise Value - the real market price of a company’s assets
- Net Capital Invested - the real replacement cost of a company’s assets
- CROCI – “Cash Return on Capital Invested”, the real economic rate of return on those assets
References[edit]
- ↑ "Subscribe to read".
- ↑ "DWS | Active, Passive, Alternative Solutions".
- ↑ Costantini, Pascal (2006), Cash Return on Capital Invested: Ten Years of Investment Analysis with the CROCI Economic Profit Model, 1st edition
Further reading[edit]
- A real value investment process - CFA institute (https://www.cfasociety.org/dayton/Presentation%20Archive/2015%20Presenations/Joe%20Hall%20-%20CROCI%20A%20Real%20Value%20Investment%20Process%20-%20April%202015.pdf)
- In search of a universal valuation metric, Barrons (https://www.barrons.com/articles/in-search-of-a-universal-valuation-metric-1437196183)
- Taking shelter in old-school dividend stocks, NY Times (https://www.nytimes.com/2016/04/10/business/mutfund/taking-shelter-in-old-school-dividend-stocks.html)
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