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LOS 31.o: Explain sources of differences READING 31: MARKET-BASED VALUATION: PRICE AND
in cross-border valuation comparisons. ENTERPRISE VALUE MULTIPLES
MODULE 31.4: EV AND OTHER ASPECTS
• Differences in accounting methods, cultures, risk, and growth opportunities.
• Country market P/Es can vary significantly.
Most affected because they are more influenced by management’s choice of
accounting methods and estimates.
P/FCFE -the least affected!
LOS 31.p: Describe momentum indicators and their use in valuation.
Relate market price (or a fundamental variable like EPS) to the time series of historical or expected value: Examples include:
• Unexpected earnings or earnings surprise is the difference between reported earnings and expected earnings:
earnings surprise = reported EPS − expected EPS
Usually scaled by a measure that expresses the variability of analysts’ EPS forecasts. The economic rationale for examining
earnings surprises is that positive surprises may lead to persistent positive abnormal returns.
• Standardized unexpected earnings (SUE) measure is defined as:
• Relative strength indicators compare a stock’s price or return performance during a given time period with its own historical
performance or with some group of peer stocks. The economic rationale is that patterns of persistence or reversal may exist in
stock returns. These are thought to possibly depend on the length of an investor’s time horizon.
