Question #45
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: 16
Status: Correct
Correct Answer: B
Question
An argument against using the price-to-sales (P/S) valuation approach is that:
Answer Choices:
A. P/S ratios are not as volatile as price-to-earnings (P/E) multiples
B. P/S ratios do not express differences in cost structures across companies
C. sales figures are not as easy to manipulate or distort as earnings per share (EPS) and book value
Explanation
P/S ratios do not express differences in cost structures across companies. Both remaining
responses are advantages of the P/S ratios, not disadvantages.