Reading 44: Market-Based Valuation: Price and Enterprise Val 2011, face, valuation, justify, center

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Session 12: Equity Investments: Valuation Models
Reading 44: Market-Based Valuation: Price and Enterprise Value Multiples

LOS g: Explain and justify the use of earnings yield (E/P).

 

 

A common pitfall in interpreting earnings yields in valuation is:

A) using underlying earnings.

B) look-ahead bias.

C) using negative earnings.

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

[此贴子已经被作者于2011-3-21 11:33:10编辑过]

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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.

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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.

土豆妮

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.