Which of the following has accounted for most of the variability in stock market returns over time? A) | The EBITDA margin of the market. |
| B) | The tax rate of the market. |
| C) | The P/E ratio of the market. |
| D) | The interest expense margin of the market. |
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Answer and Explanation
Using an earnings multiplier approach, the return on the stock market is the P/E ratio times the earnings for the market. The P/E ratio has accounted for most of the stock markets return variability over time. The earnings, of which EBITDA, interest, and taxes are components, do not influence the market return as much.
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