Question #19
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 7
Status: Correct
Correct Answer: A
Question
Which of the following measures of cash flow is most closely linked with valuation theory?
Answer Choices:
A. Earnings before interest, taxes, depreciation, and amortization (EBITDA)
B. Free cash flow to equity (FCFE)
C. Cash flow from operations (CFO)
Explanation
FCFE is most strongly linked to valuation theory. Both remaining proxies are in need of
significant adjustment to accurately measure cash flow in valuation.