Question #40
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: 15
Status: Correct
Correct Answer: A
Question
The average return on equity (ROE) earnings normalization method relies on:
Answer Choices:
A. average ROE over the most recent cycle
B. the earnings yield
C. average earnings per share (EPS) over the most recent cycle
Explanation
The average return on equity normalization method normalizes EPS as the average ROE
over the most recent full cycle multiplied by book value per share.