Which of the following are true concerning the use of price-to-earnings multiples to evaluate a high-growth company?
I.They cannot be used when earnings are negative.
II.They provide insight into what drives the company's valuation.
III.They generate imprecise results when earnings are highly volatile.
IV.They account for the unique characteristics of each company in a fast-changing environment.

Question

Quizplus · Accepted Answer

Statement I is true as price-to-earnings multiples are not applicable when earnings are negative. Statement III is also true as high volatility in earnings will lead to imprecise results. Statements II and IV are false as price-to-earnings multiples do not provide insight into what drives the company's valuation, nor do they account for the unique characteristics of each company in a fast-changing environment.

Which of the Following Are True Concerning the Use of Price-To-Earnings