Which of the followings is/are drawbacks associated with valuation by comparables with P/S or P/E? Earnings can be negative Company may have no earnings at all Sales may not be representative if products are different Sales can be manipulated i, ii and iii only i and iii only i and ii all
Which of the followings is/are drawbacks associated with valuation by comparables with P/S or P/E? Earnings can be negative Company may have no earnings at all Sales may not be representative if products are different Sales can be manipulated i, ii and iii only i and iii only i and ii all
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
-
Which of the followings is/are drawbacks associated with valuation by comparables with P/S or P/E?
- Earnings can be negative
- Company may have no earnings at all
- Sales may not be representative if products are different
- Sales can be manipulated
i, ii and iii
only i and iii
only i and ii
all
Expert Solution
Step 1 : explanation
If the the earnings are negetive, then value would also be negetive, which is not possible.
If earnings are zero, value would be infinite, which is also not possible.
Business, products or services may be entirely different so P/E rario of different industry companies can not be used.
Manipulation of sales is not possible because it can be cross variable by vat or sales tsx record.
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