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Article

Methods of Valuation: Myths vs. Reality

Stanley Block
The Journal of Investing Winter 2010, 19 (4) 7-14; DOI: https://doi.org/10.3905/joi.2010.19.4.007
Stanley Block
is an endowed professor of finance at the M.J. Neeley School of Business at Texas Christian University in Fort Worth, TX.
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  • For correspondence: s.block@tcu.edu
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Abstract

The author takes the position that too many entering the profession of finance are incorrectly trained in valuation methods. The price/earnings multiple dominates the investments material, while EV/EBITDA goes largely ignored. In this survey of 1, 209 financial analysts, 41.7% use the price-to-earnings ratio as their primary metric, while 36.2% prefer EV/EBITDA. More importantly, the survey participants predict the latter metric will be the primary measuring tool for the future. All of this is going on in spite of the fact that of the 10 leading investment texts, only one has EV/EBITDA in the index or glossary. The survey also shows a resounding negative attitude toward new measures of income proposed by the International Accounting Standards Board (which would be used in valuation models in the future).

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The Journal of Investing: 19 (4)
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Methods of Valuation: Myths vs. Reality
Stanley Block
The Journal of Investing Nov 2010, 19 (4) 7-14; DOI: 10.3905/joi.2010.19.4.007

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Methods of Valuation: Myths vs. Reality
Stanley Block
The Journal of Investing Nov 2010, 19 (4) 7-14; DOI: 10.3905/joi.2010.19.4.007
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    • Abstract
    • THE STUDY
    • WHAT MULTIPLIER WORKS BEST?
    • INDUSTRY PREFERENCE FOR MULTIPLIERS
    • COMPARISON OF KEY MEASURES IN THE DJIA
    • HOW WILL EARNINGS BE DEFINED IN THE FUTURE?
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