DEFINITION of 'Franchise Factor'
The measurement of the impact on a company's priceearnings (P/E) ratio per unit growth in new investment. For example, a franchise factor of 3 would indicate that the P/E ratio of a company would increase by three units for every unit of growth in the company's book value.
The franchise factor can be calculated as the product of annual investment returns in excess of market returns and the duration of the returns. A P/E ratio will not be elevated with a high franchise factor alone.
INVESTOPEDIA EXPLAINS 'Franchise Factor'
A company with a high franchise factor will have exceptionally high P/E ratios in comparison to its book value. This comes from the ability to continually capitalize on basic strengths, rather than the financial strength of the business. Because this is the case in many franchises, the term "franchise factor" was developed.

Multiple
A term that measures some aspect of a company's financial wellbeing, ... 
Trailing PriceToEarnings  Trailing ...
The sum of a company's pricetoearnings, calculated by taking ... 
Forward Price To Earnings  Forward ...
A measure of the pricetoearnings ratio (P/E) using forecasted ... 
PriceEarnings Ratio  P/E Ratio
A valuation ratio of a company's current share price compared ... 
Price to Tangible Book Value  ...
A valuation ratio expressing the price of a security compared ... 
PriceToBook Ratio  P/B Ratio
A ratio used to compare a stock's market value to its book value. ...

Where can I find the P/E ratios for the Dow and S&P 500?
When it comes to valuing stocks, the pricetoearnings (P/E) ratio is one of the oldest and most frequently used metrics. ... Read Full Answer >> 
Why are P/E ratios generally higher during times of low inflation?
Inflation affects equity prices in several ways. Most importantly, investors are willing to pay less for a certain level ... Read Full Answer >>

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