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Sir, if in a question I have been given most recent earnings and forecast earnings, which figure should I use to multiply to the P/E ratio to get the business value? On the ACCA study hub, they have mentioned, “The sector P/E ratio should be applied to the company’s most recent earnings figure rather than forecast earnings. The sector ratio would have been calculated based on most recent published earnings – any expected earnings growth is reflected in the size of the price-earnings multiple itself.” However, a question in the Kaplan kit (Prey Co.) has used the forecasted earnings instead of the most recent recorded earnings. Can you please clarify this doubt for me?
Thank you!
If you have been given the most recent earnings and forecast earnings in a question, you should use the most recent earnings figure to multiply by the P/E ratio to calculate the business value. The P/E ratio is typically based on the current earnings of a company, as it reflects the market’s assessment of the company’s current performance. Forecast earnings, on the other hand, are projections of future earnings and may not accurately reflect the current value of the business. Therefore, it is appropriate to use the most recent earnings figure when applying the P/E ratio method for business valuation.
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