GohwaT has a client who has inquired about the valuation method best suited for comparison of companies in an industry that has the following characteristics: • Principal competitors within the industry are located in the United States, France, Japan, and Brazil. • The industry is currently operating at a cyclical low, with many firms reporting losses. • The industry is subjected to rapid technological change. His advisor recommends that the client consider the following valuation ratios: 1. Price to earnings 2. Price to book value 3. Price to sales Determine which one of the three valuation ratios is most appropriate for comparing companies in this industry. Support your answer with two reasons that make that ratio superior to either of the other two ratios.
GohwaT has a client who has inquired about the valuation method best suited for comparison of companies in an industry that has the following characteristics:
• Principal competitors within the industry are located in the United States, France, Japan, and Brazil.
• The industry is currently operating at a cyclical low, with many firms reporting losses.
• The industry is subjected to rapid technological change.
His advisor recommends that the client consider the following valuation ratios:
1. Price to earnings
2. Price to book value
3. Price to sales
Determine which one of the three valuation ratios is most appropriate for comparing companies in this industry. Support your answer with two reasons that make that ratio superior to either of the other two ratios.
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