Perpetual Intrinsic P/E for DDM, DEM & DRM Models

The intrinsic P/E formula expounded by John Burr Williams in his BOOK : THE THEORY OF INVESTMENT VALUE :

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Pre-requisite Conditions set by John Burr Williams:

— Future Growth is ignored, reset to 0%

— Period is Perpetual, Infinity into the future

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(A)

For Perpetual Discounted Dividend Model :

Perpetual Intrinsic P/E (DDM Model)

= Dividend Payout Ratio ÷ Discount Ratio

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In reality, Perpetual Intrinsic P/E (DDM Model) is too low, if the quoted market P/E reaches this Perpetual Intrinsic P/E (DDM Model), it is an extreme fantastic bargain.

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(B)

For Perpetual Discounted Earning Model :

Perpetual Intrinsic P/E (DEM Model)

= 1 ÷ Discount Ratio

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In reality, if the quoted market P/E reaches this Perpetual Intrinsic P/E (DEM Model), it is in the Fair Range.

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(C)

Expanding his concept to Residue, we have :

Residue = Net Profit - Dividend

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For Perpetual Discounted Residue Model :

Perpetual Intrinsic P/E (DRM Model)

= (1 - Dividend Payout Ratio) ÷ Discount Ratio

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In reality, if the quoted market P/E reaches this Perpetual Intrinsic P/E (DRM Model), it is a Good MOS Bargain.

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Clean Discount Ratio is highly recommended to be used in the place of Discount Rate.