Franchise P/E

The expected value of new business opportunities available to a business. The franchise approach to evaluating a company breaks down the company's observed P/E into two primary components: the P/E coming from the company's business activities (base P/E) and the franchise P/E. In this sense, the franchise P/E = observed P/E - base P/E. It is a function of the rate of return on a business opportunity (the franchise factor) relative to the size of the opportunity (the growth factor).

Franchise Factor (FF) x Growth Factor (G) = (1/k - 1/ROE) x g/(k-g), where:

k = cost of equity
g = growth

The major factors determining the franchise P/E are the differences between the return on the new opportunity and the cost of equity. Investors should consider the growth rate and how long growth can be sustained, as well as the feasibility of the estimates (after all, they are expectations and not reality).


Investment dictionary. . 2012.

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  • franchise — [ frɑ̃ʃiz ] n. f. • déb. XIIe; de 2. franc 1 ♦ Vx Liberté, indépendance. ♢ Anciennt Droit (privilège, immunité, etc.) limitant l autorité souveraine au profit d une ville, d un corps, d un individu. Charte, lettre de franchise (cf. Ville franche) …   Encyclopédie Universelle

  • franchisé — franchise [ frɑ̃ʃiz ] n. f. • déb. XIIe; de 2. franc 1 ♦ Vx Liberté, indépendance. ♢ Anciennt Droit (privilège, immunité, etc.) limitant l autorité souveraine au profit d une ville, d un corps, d un individu. Charte, lettre de franchise (cf.… …   Encyclopédie Universelle

  • franchise — fran·chise / fran ˌchīz/ n [Anglo French, literally, freedom, liberty, from Middle French, from franchir to free, from Old French franc free] 1: a special right or privilege granted by the government to an individual, group, or business entity:… …   Law dictionary

  • Franchisé — Franchise (réseau commercial) Pour les articles homonymes, voir Franchise. La franchise est un accord commercial et juridique par lequel une entreprise appelée le franchiseur s engage à fournir à une seconde entreprise, dite franchisée, un savoir …   Wikipédia en Français

  • franchise — Franchise, f. penac. Vient de Franc, et signifie liberté, Libertas, comme, Il a acquis franchise, E seruo liber factus est, Libertatem adeptus est. Il se prend aussi pour liberation d une debte. Selon ce on dit, Par laps de temps et negligence de …   Thresor de la langue françoyse

  • franchise — Franchise. s. f. Exemption, Immunité. La franchise des Eglises. joüir de la franchise d un lieu, d une ville. lieu de franchise. Il se dit aussi du Lieu mesme, & signifie, Asyle. On ne le sçauroit prendre en ce lieu là, c est une franchise. Il… …   Dictionnaire de l'Académie française

  • Franchise — generally means a right or privilege. It may refer to:*Suffrage, the civil right to vote *Franchising, a business method that involves licensing of trademarks and methods of doing business, such as: **Chain store, retail outlets which share a… …   Wikipedia

  • Franchise — (über das Englische von frz. franchise = Gebührenfreiheit) steht für: Franchising, ein Geschäftsmodell, vor allem im Einzelhandel und bei Dienstleistungsunternehmen Franchise (Medien), ein geistiges Eigentum im Bereich der Unterhaltungsmedien… …   Deutsch Wikipedia

  • franchise — ► NOUN 1) an authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities. 2) a business or service granted such a franchise. 3) the right to vote in public elections. 4) N …   English terms dictionary

  • Franchise — Fran chise (? or ?; 277), n. [F., fr. franc, fem. franche, free. See {Frank}, a.] 1. Exemption from constraint or oppression; freedom; liberty. [Obs.] Spenser. [1913 Webster] 2. (LAw) A particular privilege conferred by grant from a sovereign or… …   The Collaborative International Dictionary of English

  • franchise — [fran′chīz΄] n. [ME < OFr < franc, free: see FRANK1] 1. Archaic freedom from some restriction, servitude, etc. 2. any special right, privilege, or exemption granted by the government, as to be a corporation, operate a public utility, etc. 3 …   English World dictionary

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