Lesson 25 · Valuation inputsL25 · Valuation inputsXP0PASSED0

The P/E driver tree: three levers, one filed

A multiple is a price for a stream of earnings, and exactly three levers move it: how fast the stream grows, the return the market requires to wait for it, and how much of it is paid out along the way. Every P/E conversation is one of these three wearing a costume.

Below, three described scenarios — teaching hypotheticals about the mechanics, not readings of any company. Assign each to the one driver it moves. The filed panel shows the only driver a filing can evidence: the payout legs. Growth expectations and the required return live in the market and appear in no filing.

Trace each scenario to the single input of the multiple it changes: the growth of the earnings stream, the required return that discounts it, or the payout share distributed rather than retained. One driver per scenario.

The figures · MSFTUSD, millions

Net income FY2026	133,749
Dividends paid FY2026	−26,445

MICROSOFT CORP 10-K (FY2026, accession 0001193125-26-323660), via SEC EDGAR

Your answerThree scenarios, three drivers. For each scenario, select the ONE driver it moves — three selections in all. The scenarios are teaching hypotheticals about the identity's mechanics, not readings of any company's data.

Scenario A — Policy rates move up across the economy, and with them the return investors require for holding equities in general.
Scenario B — After a durable new product cycle, the consensus long-run earnings growth assumption for a company is revised.
Scenario C — A board commits to distributing a larger share of each year's earnings to shareholders as dividends.

Scenario A moves earnings growth.Scenario A moves required return.Scenario A moves payout.Scenario B moves earnings growth.Scenario B moves required return.Scenario B moves payout.Scenario C moves earnings growth.Scenario C moves required return.Scenario C moves payout.

One line: which of the three drivers can move with no action by the company, and why?

Educational use only — not investment advice. Figures come from public SEC filings; Echelon teaches you to analyze data, it never recommends buying or selling any security.