Question #98
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: 34
Status: Unattempted
Correct Answer: B
Question
An argument for using the price-to-earnings (P/E) valuation approach is that:
Answer Choices:
A. management discretion increases the reliability of the ratio
B. earnings power is the primary determinant of investment value
C. earnings can be negative
Explanation
Earnings power is the primary determinant of investment value. Both remaining factors
reduce the usefulness of the P/E approach.