From P/E Ratio to Fuzzy Infinite Spreadsheet—Mathematically Rigorous Derivations of the Zeroth and the First Order Solutions of Rate of Return

The P/E Ratio (Price/Earning) is one of the most popular concepts in stock analysis, yet its exact interpretation is lacking. Most stock investors know the P/E Ratio as a financial indicator with the useful characteristics of being relatively time-invariant. In this paper, a rigorous mathematical derivation of the P/E Ratio is presented. The derivation shows that, in addition to its assumptions, the P/E Ratio can be considered the zeroth order solution to the rate of return on investment. The commonly used concept of the Capitalization Rate (Cap Rate = Net Income / Price) in real estate investment analysis can also be similarly derived as the zeroth order solution of the rate of return on real estate investment. This paper also derives the first order solution to the rate of return (Return = Dividend/Price + Growth) with its assumptions. Both the zeroth and the first order solutions are derived from the exact future accounting equation (Cash Return = Sum of Cash Flow + Cash from Resale). The exact equation has been used in the derivation of the exact solution of the rate of return. Empirically, as an illustration of an actual case, the rates of return are 3%, 73%, and 115% for a stock with 70% growth rate for, respectively, the zeroth order, the first order, and the exact solution to the rate of return; the stock doubled its price in 2004. This paper concludes that the zero-th, the first order, and the exact solution of the rate of return all can be derived mathematically from the same exact equation, which, thus, forms a rigorous mathematical foundation for investment analysis, and that the low order solutions have the very practical use in providing the analytically calculated initial conditions for the iterative numerical calculation for the exact solution. The solution of value belongs to recently classified Culture Level Quotient CLQ = 10 and is in the process of being updated by fuzzy logic with its range of tolerance for predicting market crashes to advance to CLQ = 2.

Breakdown of similarity solutions: a perturbation approach for front propagation during foam-improved oil recovery

The pressure-driven growth model has been employed to study a propagating foam front in the foam-improved oil recovery process. A first-order solution of the model proves the existence of a concave corner on the front, which initially migrates downwards at a well defined speed that differs from the speed of front material points. At later times, however, it remains unclear how the concave corner moves and interacts with points on the front either side of it, specifically whether material points are extracted from the corner or consumed by it. To address these questions, a second-order solution is proposed, perturbing the aforementioned first-order solution. However, the perturbation is challenging to develop, owing to the nature of the first-order solution, which is a similarity solution that exhibits strong spatio-temporal non-uniformities. The second-order solution indicates that the corner’s vertical velocity component decreases as the front migrates and that points initially extracted from the front are subsequently consumed by it. Overall, the perturbation approach developed herein demonstrates how early-time similarity solutions exhibiting strong spatio-temporal non-uniformities break down as time proceeds.