Question #133
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: 47
Status: Unattempted
Question
An argument for using the price-to-earnings (P/E) valuation approach is that:
Answer Choices:
A. research shows that P/E differences are significantly related to long-run average stock returns
B. earnings volatility facilitates interpretation
C. earnings can be negative
Explanation
Research shows that P/E differences are significantly related to long-run average stock
returns. Both remaining factors reduce the usefulness of the P/E approach.