Which of the following statements is most accurate:
A. |
Discounted Cash Flow analysis models provide conclusions associated with Fair Value Hierarchy Level 1 inputs. |
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B. |
Price / Earnings multiples directly provide insights into the total company, the TEV. |
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C. |
Generally, (EBIT) and (EBITDA) multiples directly provide insight into the equity value. |
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D. |
Price / Earnings multiples provide insights into the value of the equity. |
The Answer of this particular question is option D that is Price / Earnings multiples provide insights into the value of equity.
EXPLANATION
Price Multiple - Price Multiples is also known as Earnings Multiples. Price / Earnings multiples is very common and widely used. It is very simple and attractive method.
Price / Earnings multiples defines ratio between market price per share and Earnings per share.
Price Multiple = market price per share / Earnings per share
In above formula nominator is equity per share and denominator is earnings per share.
It hleps investors in determining the value of stock whether it is overvalued, undervalued or fairly valued.
Hence the most accurate statement is option D that is Price / Earnings multiples provide insights into the value of equity.
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