firm, and the expected growth rate in earnings. The only
practicaldifferenceisthatwehavetoestimatetheseinputs
twiceforahigh-growthfirm,onceforthehigh-growthperiod
andonceforstablegrowth.Thisformulaisgeneralenoughto
beappliedtoanyfirm,evenonethatisnotpayingdividends
right now. In fact, the ratio of FCFE to earnings can be
substitutedforthepayoutratioforfirmsthatpaysignificantly
less in dividends than they can afford to.
Extendingthesameapproach,wecanderivethefundamental
equations for PEG, price-to-book, and price-to-sales ratios:
While the equations look daunting, the conclusions are
comforting.Thedeterminantsforallthreeofthesemultiples,
like the P/E ratio, are unchanged from the stable growth
setting.