Reading 61: Introduction to Price Multiples - LOS a, (Part

答案和详解如下：

1.Which of the following is a disadvantage of using the price-to-book value (PBV) ratio?

A)   Book values are affected by accounting standards, which may vary across firms and countries.

B)   Firms with negative earnings cannot be evaluated with the PBV ratios.

C)   Book value may not mean much for manufacturing firms with significant fixed costs.

D)   Book values are extremely volatile, depending on the state of the economy.

The correct answer was A)

The disadvantages of using PBV ratios are:

1.   Book values are affected by accounting standards, which may vary across firms and countries.

2.   Book value may not mean much for service firms without significant fixed costs.

3.   Book value of equity can be made negative by a series of negative earnings, which limits the usefulness of the variable.

2.Which of the following is a disadvantage of using price-to-sales (P/S) multiples in stock valuations?

A)   P/S multiples are more volatile than P/E multiples.

B)   The use of P/S multiples can miss problems associated with cost control.

C)   P/S multiples are not available for all firms, unlike the P/E ratio.

D)   It is difficult to capture the effects of changes in pricing policies using P/S ratios.

The correct answer was B)

Due to the stability of using sales relative to earnings in the price-to-sales (P/S) multiple, an analyst may miss problems of troubled firms concerning its cost control. P/S multiples are actually less volatile than P/E ratios, which is an advantage in using the PS multiple. Another advantage is that P/S ratios are available for all firms, including distressed firms, which is not necessarily the case for P/E multiples. Finally, P/S ratios provide a useful framework for evaluating effects of pricing changes on firm value.

3.All of the following are advantages of using price/sales (P/S) multiple EXCEPT:

A)   Sales figures are not as easy to manipulate as earnings and book value, which are significantly affected by accounting conventions.

B)   P/S multiples are not as volatile as P/E multiples and hence may be more reliable in valuation analysis.

C)   P/S multiples provide a meaningful framework for evaluating distressed firms.

D)   P/S multiples are more reliable because sales data cannot be distorted by management.

The correct answer was D)

Accounting data on sales is used to calculate the P/S multiple. The P/S multiple is thought to be more reliable only because sales figures are not as easy to manipulate as the earnings and book value, both of which are significantly affected by accounting conventions.

4.One disadvantage of using the price/sales (P/S) multiple for stock valuation is that:

A)   profit margins are not stable over time.

B)   profit margins are not consistent across firms within an industry.

C)   P/S multiple does not provide a framework to evaluate the effects of corporate policy decisions and price changes.

D)   sales are relatively stable and might not change even though earnings and value might change significantly.

The correct answer was D)

The stability of sales (relative to earnings and book value) can be a disadvantage. For example, revenues may remain stable but earnings and book values can drop significantly due to a sharp increase in expenses.

5.An argument against using the price-to-sales (P/S) valuation approach is that:

A)   sales figures are not as easy to manipulate or distort as earnings per share (EPS) and book value.

B)   P/S ratios do not express differences in cost structures across companies.

C)   research shows that P/S differences are significantly related to long-run average stock returns.

D)   P/S ratios are not as volatile as price-to-earnings (P/E) multiples.

The correct answer was B)

P/S ratios do not express differences in cost structures across companies. The other responses are advantages of the P/S ratios, not disadvantages.

6.An argument against using the price-to-earnings (P/E) valuation approach is that:

A)   earnings power is the primary determinant of investment value.

B)   earnings can be negative.

C)   research shows that P/E differences are significantly related to long-run average stock returns.

D)   the P/E ratio is widely recognized and used in the investment community.

The correct answer was B)

Negative earnings render the P/E ratio useless. All of the other factors increase the usefulness of the P/E approach.

7.An argument against using the price to cash flow (P/CF) valuation approach is that:

A)   cash flows are not as easy to manipulate or distort as EPS and book value.

B)   empirical research shows that price to cash flow ratios help explain differences in long-run average returns.

C)   price to cash flow ratios are not as volatile as price-to-earnings (P/E) multiples.

D)   non-cash revenue and net changes in working capital are ignored when using earnings per share (EPS) plus non-cash charges as an estimate.

The correct answer was D)

Items affecting actual cash flow from operations are ignored when the EPS plus non-cash charges estimate is used. For example, non-cash revenue and net changes in working capital are ignored. The other responses are arguments in favor of using the price to cash flow approach.