C214 - Topic 14 Question and answers
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Three primary ways to value a firm:
1. replacement cose - correct answer ✔serves as a review of our understanding of the balance sheet
Three primary ways to value a firm:
2. comparable multiples - correct answer ✔technique to value an entire firm based on the based on
financial ratios of other firms or industries
Three primary ways to value a firm:
3. discounted cash flows (DCF) - correct answer ✔the skill set of using time value of money and
forecasting value tools
What financial ratio is used in the "comparables method" of firm valuation? - correct answer ✔P/E
ratio or Price/Earnings ratio
the idea behind comparables is that you find a comparable firm PE ratio and you multiply it by your
firm's earnings.
Sometimes, the PE ratio is inverted so we have earnings/price. When this is the case, it is called: -
correct answer ✔Earnings yield. Some analysts prefer the earnings yield to the PE ratio because when
earnings fall close to zero, the earnings yield results in a very small number (close to zero); however, the
PE results in a very large number. The earnings yield can help avoid this distortion.
PS ratio
rated A+ 2026
Three primary ways to value a firm:
1. replacement cose - correct answer ✔serves as a review of our understanding of the balance sheet
Three primary ways to value a firm:
2. comparable multiples - correct answer ✔technique to value an entire firm based on the based on
financial ratios of other firms or industries
Three primary ways to value a firm:
3. discounted cash flows (DCF) - correct answer ✔the skill set of using time value of money and
forecasting value tools
What financial ratio is used in the "comparables method" of firm valuation? - correct answer ✔P/E
ratio or Price/Earnings ratio
the idea behind comparables is that you find a comparable firm PE ratio and you multiply it by your
firm's earnings.
Sometimes, the PE ratio is inverted so we have earnings/price. When this is the case, it is called: -
correct answer ✔Earnings yield. Some analysts prefer the earnings yield to the PE ratio because when
earnings fall close to zero, the earnings yield results in a very small number (close to zero); however, the
PE results in a very large number. The earnings yield can help avoid this distortion.
PS ratio
