Which of the following statements is FALSE?
A)Forward earnings are the expected earnings over the coming 12 months.
B)We can estimate the value of a firm's shares by multiplying its current earnings per share by the average price-earnings ratio of comparable firms.
C)For valuation purposes, the trailing price-earnings ratio is generally preferred, since it is based on actual, not expected, earnings.
D)'Trailing earnings' are the earnings over the previous 12 months.

Question

Quizplus · Accepted Answer

The statement about the general preference for trailing price-earnings ratio for valuation purposes is false. In practice, both trailing and forward price-earnings ratios are used for valuation, and the preference can vary depending on the context, the industry, and the specific characteristics of the firm. Forward earnings are often used for growth companies where future earnings are expected to be significantly higher.

Which of the Following Statements Is FALSE