Equity question from Topic test equity # 14

  1. EV/EBITDA is less likely to be impacted by differences in international accounting standards than P/E or Price to Free Cash Flow to Equity (P/FCFE).

  2. When the inflation rates in two countries are the same, the justified P/E multiple should be lower for companies with a higher inflation pass through rate, all else being equal.

  3. Assuming all else is equal, a company in a country with high inflation will have lower justified P/E multiples than a company in a country with lower rates of inflation.

Which of the observations regarding comparison of crossborder valuation multiples is the most accurate? Observation 3 Observation 2 Observation 1

Correct answer is observation 3. Why Observation 2 is not correct ?


if a company is able to pass thro more of its inflation to its customers - it is changing higher prices on its items - Higher Sales … so P/E would then be HIGHER for that company,

(It would be HIGHER not LOWER)