Price-to-earnings ratios of comparable companies provide an excellent means of valuing the target firm at any point in the business cycle.

Question

Quizplus · Accepted Answer

Price-to-earnings ratios can vary significantly across different stages of the business cycle, affecting their reliability for valuing a target firm consistently at any point. Factors such as economic conditions, industry performance, and company-specific events can lead to fluctuations in earnings, making P/E ratios less stable and potentially misleading for valuation purposes without considering the broader context.

Price-To-Earnings Ratios of Comparable Companies Provide an Excellent Means of Valuing