What are the possible weaknesses of this peer approach to valuation


KNOWLEDGE CHECK What are the possible weaknesses of this peer approach to valuation? The approach does not account for indust

what are the possible weaknesses of this peer approach to valuation?



KNOWLEDGE CHECK What are the possible weaknesses of this peer approach to valuation? The approach does not account for indust

         

KNOWLEDGE CHECK What are the possible weaknesses of this peer approach to valuation? The approach does not account for industry context, the company might have multiple divisions, and the approach focuses on the statistics of only one company The chosen peers might not be true competitors, the approach focuses on the statistics of only one company, and the most appropriate competitors might not have P/E multiples. The chosen peers might not be true competitors, the company might have multiple divisions, and the most appropriate competitors might not have P/E multiples The chosen peers might not be true competitors, the company might have multiple divisions, and the approach focuses on the statistics of only one company

Answer

The answer is “C” : The chosen peers might not be true competitors, the company might have multiple divisions, and most appropriate competitors might not have P/E multiples.

This is because peer approach to valuation does account for industry context and it does not only focus on the statistics of only one company. Peer groups are often made up of multiple firms in the same industry, however some firms chosen as competitors might not have P/E multiples.


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