Hi Guys,
Need some help understanding this question. What would be the correct answer?
When constructing a list of peer companies to be used in equity valuation, which of the following would least likely improve the group? Companies in the same peer group should ideally:
A)have similar valuations.
B) have the effects of finance subsidiaries minimized.
C)be exposed to similar stages in the business cycle.
Thanks in advance.
Well it’s not C. Don’t quite understand A and B. My understanding of B is that ?finance? subsidiaries are bad in the sense that the business with lots of subsidiaries is likely to be involved in different areas. If that’s the case then it’s not B and that leaves just A. A seems relatively reasonable but unlikely, but not incorrect in itself but least likely to be correct in my opinion. But I’m not sure.
A) Valuation is the result of forming a peer group and calculation of multiples. The companies in the peer group ma have quite different valuations depending on their performance.
Regards, Oscar