Abbott Laboratories (ABT) engages in the discovery, development, manufacture, an
ID: 2612498 • Letter: A
Question
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .6 and the risk-free rate was 3.21 percent. Assume a market risk premium of 6 percent.
Using the P/E, P/CF, and P/S ratios, estimate the 2013 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .6 and the risk-free rate was 3.21 percent. Assume a market risk premium of 6 percent.
Explanation / Answer
Solution.
1. P/E = P/E is short for the ratio of a company's share price to its per-share earnings. The price-to-earnings ratio, or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share
price-to-earnings ratio for 2008 =
price-to-earnings ratio for 2009 =
price-to-earnings ratio for 2010 =
price-to-earnings ratio for 2011 = =
price-to-earnings ratio for 2012 ==
2. P/CF = The price/cash flow ratio (also called price-to-cash flow ratio or P/CF), is a ratio used to compare a company's market value to its cash flow. It is calculated by dividing the company's market cap by the company's operating cash flow in the most recent fiscal year (or the most recent four fiscal quarters); or, equivalently, divide the per-share stock price by the per-share operating cash flow. In theory, the lower a stock's price/cash flow ratio is, the better value that stock is.
P/CF Ratio of 2008 = 72.25 / 4.32 = 16.72
P/CF Ratio of 2009 = 51.80 / 5.09 = 10.17
P/CF Ratio of 2010 = 52.55 / 5.91 = 8.90
P/CF Ratio of 2011 = 55.05 / 6.61 = 8.32
P/CF Ratio of 2012 = 50.55 / 6.60 = 7.65
3. P/S = Price–sales ratio, P/S ratio, or PSR, is a valuation metric for stocks. It is calculated by dividing the company's market cap by the revenue in the most recent year; or, equivalently, divide the per-share stock price by the per-share revenue. Also, justified p/s is calculated as (profit margin × payout × (1 + g)/(r g)).
Price–sales ratio for 2008 = 72.25 / 3.03
Price–sales ratio for 2009 = 51.80 /3.72 =13.92
Price–sales ratio for 2010 = 52.55 /4.17 = 12.60
Price–sales ratio for 2011 = 55.05 /4.66 = 11.81
Price–sales ratio for 2012 = 50.55 /5.00 = 10.11
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.