Hello, David.
It's been a long time since posting on this board.
I have a quick question about the P/E ratio.
If you break down the P/E ratio derivation algebraically, the payout ratio is on the numerator, effectively making it as a positive factor with relation to the P/E ratio. But on the other side, if you take into account the effects of high payout ratios in terms of how it contributes to draining down the cash left on the firm, thus effectively making the firm less valuable, I believe high payout ratio also has a negative effect on the price at the same time. How should I reconcile this contradiction between those two effects occurring simultaneously?
Thanks for reading.
Regards,
Donald
It's been a long time since posting on this board.
I have a quick question about the P/E ratio.
If you break down the P/E ratio derivation algebraically, the payout ratio is on the numerator, effectively making it as a positive factor with relation to the P/E ratio. But on the other side, if you take into account the effects of high payout ratios in terms of how it contributes to draining down the cash left on the firm, thus effectively making the firm less valuable, I believe high payout ratio also has a negative effect on the price at the same time. How should I reconcile this contradiction between those two effects occurring simultaneously?
Thanks for reading.
Regards,
Donald
