Reading 48: Market-Based Valuation: Price Multiples - LOS

答案和详解如下：

1.A common justification for using earnings yields in valuation is that:

A)   earnings are more stable than dividends.

B)   negative earnings render P/E ratios meaningless and prices are never negative.

C)   earnings are usually greater than free cash flows.

D)   fundamentals influence dividends more than earnings.

The correct answer was B)

Negative earnings render P/E ratios meaningless. In such cases, it is common to use normalized earnings per share (EPS) and/or restate the ratio as the earnings yield or E/P because price is never negative. Price to earnings (P/E) ranking can then proceed as usual.

2.A common pitfall in interpreting earnings yields in valuation is:

A)   using negative earnings.

B)   using normalized earnings.

C)   look-ahead bias.

D)   using underlying earnings.

The correct answer was C)

A common pitfall is look-ahead bias, wherein the analyst uses information that was not available to the investor when calculating the earnings yield.

3.The observation that negative price to earnings (P/E) ratios are meaningless and prices are never negative is used to justify which valuation approach?

A)   Dividend yield.

B)   Dividend discount model.

C)   Earnings discount.

D)   Earnings yield.

The correct answer was D)

The observation is used to justify the earnings yield approach. Negative P/E ratios are meaningless. In such cases, it is common to use normalized earnings per share (EPS) and/or restate the ratio as the earnings yield or E/P because price is never negative. Price to earnings (P/E) ranking can then proceed as usual.