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There are various limitations to employing the PE Ratio for company to company comparisons. Describe several...

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Finance

There are various limitations to employing the PE Ratio forcompany to company comparisons. Describe several of thelimitations. A better measure would be to employ the PEG Ratio, howwould you calculate? List and explain in a one to two page doublespaced

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A PE Ratio or Price to Earnings Ratio is an important valuation matrix used in real life and is calculated as dividing Price per share by Earnings per Share The PE ratio implies how much investors are willing to pay for 1 of a firms earnings Although PE ratio has many advantages it has several limitations for company to company comparisons including 1 Cyclicality Firms that go through boom and bust cycles like automobiles can have high or low earnings respectively So lets say in    See Answer
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