上一主题:Equity Valuation【Reading 42】Sample
下一主题:Equity Valuation【Reading 40】Sample
返回列表 发帖
A common justification for using earnings yields in valuation is that:
A)
negative earnings render P/E ratios meaningless and prices are never negative.
B)
earnings are more stable than dividends.
C)
earnings are usually greater than free cash flows.




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.

TOP

An increase in profit margin will cause a price-to-sales (P/S) multiple to increase if:
A)
the required rate of return increases.
B)
there is insufficient information to tell.
C)
the growth rate in sales does not decrease proportionately.



An increase (decrease) in the profit margin increases (decreases) the growth rate if sales do not decrease (increase) proportionately. Increases in the required rate of return would decrease the P/S ratio. This is clear in the expression for trailing P/S:
P0 / S0 = [(E0 / S0)(1 – b)(1 + g)] / (r – g)

TOP

An increase in return on equity (ROE) will cause a price-to-book (P/B) multiple to:
A)
decrease.
B)
increase.
C)
there is insufficient information to tell.



An increase in ROE should increase the price to book (P/B) ratio:
P0 / B0 = (ROE – g) / (r – g)

TOP

An increase in return on equity (ROE) will cause a price-to-earnings (P/E) multiple to:
A)
there is insufficient information to tell.
B)
decrease.
C)
increase.



An increase in ROE will increase growth through the g = (ROE × retention) relation. Thus, as growth increases, the following expression for trailing P/E should increase:
P0/E0 = [(1 – b)(1 + g)] / (r – g)
Note that the topic review does not allow for any interactive relationship between leverage, ROE, and growth. Thus, no explicit consideration is given to whether the increase in ROE results from risk-increasing leverage that could cause an offsetting increase in the required rate of return

TOP

The price-to-book value (PBV) ratio for a high-growth firm will:
A)
increase as the growth rate in either the high-growth or stable-growth period increases.
B)
increase as the growth rate in either the high-growth or stable-growth period decreases.
C)
increase as the growth rate in the high-growth period increases and decrease as the growth rate in the stable-growth period increases.



The PBV ratio for a high-growth firm will be determined by growth rates in earnings in both the high-growth and stable-growth periods. The PBV ratio increases as the growth rate increases in either period.

TOP

The net impact of an increase in payout ratio on price-to-book value (PBV) ratio cannot be determined because it might also:
A)
decrease the market value of the firm.
B)
decrease expected growth.
C)
decrease required rate of return.



If payout increases, the growth of the firm may slow down, because internally generated funds are not being invested in new, profitable projects. Hence, the net impact on the PBV ratio from change in payout ratio cannot be determined.

TOP

An increase in financial leverage will cause the trailing price-to-earnings (P/E) multiple to:
A)
decrease.
B)
increase.
C)
there is insufficient information to tell.



An increase in financial leverage will cause the required rate of return to increase, thereby decreasing the P/E. This is clear in the expression for trailing P/E:
P0 / E0 = [(1 – b)(1 + g)] / (r – g)
(Note: the topic review does not allow for any interactive relationship between leverage, return on equity (ROE), and growth. Thus, no explicit consideration is given to whether the increase in leverage would increase ROE and therefore growth through the g = (ROE × retention) relationship

TOP

An increase in growth will cause a price-to-earnings (P/E) multiple to:
A)
there is insufficient information to tell.
B)
decrease.
C)
increase.



An increase in growth will decrease the denominator and increase the numerator in the trailing P/E expression, both of which should increase the P/E ratio:
P0/E0 = [(1 – b)(1 + g)] / (r – g)
Note that the topic review does not allow for any interactive relationship between retention and growth. Thus, no explicit consideration is given to how the growth increase was generated.

TOP

An increase in growth will cause a price to cash flow multiple to:
A)
decrease.
B)
there is insufficient information to tell.
C)
increase.


An increase in growth increases the price to cash flow ratio (CF), as indicated by the following expression:
P0 / CF0 = (1 + g) / (r – g)

TOP

A decrease in the earnings retention rate will cause a price-to-sales (P/S) multiple to:
A)
decrease.
B)
remain the same.
C)
increase.



A decrease in the earnings retention rate will increase the following expression for P/S due to the implied increase in the payout ratio, which is (1 – b):
P0 / S0 = [(E0 / S0)(1 – b)(1 + g)] / (r – g)
Note that the topic review does not allow for any interactive relationship between retention and growth. Thus, no explicit consideration is given to whether the increase in the payout ratio will cause an offsetting decrease in growth.

TOP

返回列表
上一主题:Equity Valuation【Reading 42】Sample
下一主题:Equity Valuation【Reading 40】Sample