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While going through Kaplan text, I learnt that P/E ratio of an unquoted target company, if it needs to be valuated higher than now, the acquiring company should give appropriate reasons for that.
But while referencing BPP text, they have mentioned that 1/2 to 2/3 of existing proposed P/E of target company should be taken for valuation of the target company for exam purposes.
I am confused what to follow.
I think that you are misreading one of the texts!
You find the PE of a target quoted company. When applying it to an unquoted company you would use a lower PE (or else use the same PE and then lower the value) – unquoted companies will be worth less than quoted companies because their shares cannot be easily traded.
There is no rule as to how much you should lower the PE by – it is just something to make a point of in the written part of your answer.
Have you watched my free lectures? The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well. If you are watching the lectures then you do not really need to use a Study Text.
What is far more important – however you choose to study – is that you have a current edition of a Revision Kit from one of the ACCA approved publishers, and that you practice every question. Question practice is vital to passing the exam.John,
I am sure that I haven’t been misreading the texts.I was confused in this area for last few hours and I have revisited the text time and again to make sure of it.I will watch the free lectures though 🙂
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