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Hi tutor,
I’ve been seeing mixed answers on the appropriateness of using PE ratio method for valuing listed companies for the past few weeks. Is the PE ratio method more suited for listed companies, or for unquoted companies? If it’s more suited for listed companies (think I read this in the ACCA article), I can see why- because it is hard to decide on the amount of adjustment to the PE ratio for valuing unlisted companies.But I don’t see why PE ratio method is more suited for unlisted companies (if it is) – as said by the past year question: December 2014 qns2. Hope you could help me on this, thanks 🙂
We don’t use the PE ratio to get the value of a share in a quoted company, because if it is quoted we know its market value!!!
It is when trying to put a value on a share in an unquoted company that using the PE of a quoted company is useful (even though it is not always easy to find a similar quoted company, and you would expect a share in an unquoted company to be worth less (therefore use a lower PE) because it is not easily tradeable.
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