土豆妮

Which of the following is NOT an advantage of using price-to-book value (PBV) multiples in stock valuation?

A) Book value is often positive, even when earnings are negative.

B) PBV ratios can be compared across similar firms if accounting standards are consistent.

C) Book values are very meaningful for firms in service industries.

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Book values are NOT very meaningful for firms in service industries.

土豆妮

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

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

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

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

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

土豆妮

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

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

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

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

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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.