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P/E ratio and listing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › P/E ratio and listing

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • April 28, 2021 at 2:38 pm #619089
    nataly1986
    Member
    • Topics: 21
    • Replies: 65
    • ☆☆

    “As Matravers Tech would not be listed, this would suggest a discount to
    the P/E ratio should be applied” could you please explain the statement, how listing affect P/E ratio?

    Thank you

    April 28, 2021 at 3:17 pm #619092
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51561
    • ☆☆☆☆☆

    Listed shares are more easily traded than unlisted shares and will therefore have a higher share value (for otherwise identical companies) because shareholders know they will be able to sell them easily in the future if they want to.

    So if Maltravers (wherever you found this question) is using the PE ratio of a similar quoted company to value its shares, then we need to reduce the PE ratio used so as to arrive at a lower share price than had it been quoted.

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