Financial Management - Chapter 13
The combination of opportunity and execution.
Opportunities must be recognized, and
Employees must be ready, willing and able to take advantage of the opportunities.
Using the P/E ratio:
If a firm’s P/E ratio is 20, then a dollar increase in earnings per share will create $20 in additional equity value per share.
Problem: ignores R&D, which would reduce earnings per share, but should increase future earnings!