The Price/cash Flow Ratio Has Grown in Prominence and Use

question 204

True/False

The price/cash flow ratio has grown in prominence and use for valuing firms because many analysts contend that a firm's cash flow is less subject to manipulation than the firm's earnings per share.

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Definitions:

Equity Method

An accounting technique used when a company holds a significant influence over another (associate) company, usually through ownership of 20% to 50% of the voting stock, involving adjusting the value of the investment based on the investee's performance.

Acquisition Differential

The difference between the purchase price of an acquired company and the fair value of its net identifiable assets.

Common Shares

Equity securities that represent ownership in a corporation, entitling holders to a share of the corporation's profits through dividends and/or capital appreciation.

Open Market

A freely competitive market where buyers and sellers can transact without restrictions or regulations.