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CIMAPRA19-F03-1 Exam - Topic 2 Question 63 Discussion

When valuing an unlisted company, aP/Eratio for a similar listed company may be used but adjustments to theP/Eratio may be necessary.Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?
A) The relative lack of marketability of unlisted company shares. and B) A lower level of scrutiny and regulation for unlisted companies. and E) The forecast earnings growth being relatively higher in the unlisted company.
C) Unlisted companies being generally smaller and less established.
D) Control premium not being included within the proxy p/e ratio used.
F) A profit item within the unlisted company's latest earnings which will not reoccur.

CIMAPRA19-F03-1 Exam - Topic 2 Question 63 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 63
Topic #: 2
[All CIMAPRA19-F03-1 Questions]

When valuing an unlisted company, aP/Eratio for a similar listed company may be used but adjustments to theP/Eratio may be necessary.

Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

Show Suggested Answer Hide Answer
Suggested Answer: A, B, E

by Chantell at Jan 06, 2023, 10:19 PM

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Mee
10 months ago
Lack of marketability is a big factor, can't overlook that.
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Angella
10 months ago
Control premium should definitely be considered, good point!
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Nikita
10 months ago
Wait, are we really adjusting for forecast earnings growth? Seems odd.
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Luisa
11 months ago
Totally agree, smaller companies usually have more risk.
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Dierdre
11 months ago
A lower level of scrutiny for unlisted companies makes sense.
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Denna
11 months ago
Control premiums not being included in the proxy P/E ratio sounds familiar, but I’m not confident if it’s one of the top three factors we discussed.
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Thea
11 months ago
Unlisted companies being smaller and less established seems like a clear reason to adjust the P/E ratio, but I wonder if that applies to all cases.
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Carman
11 months ago
I think the lower level of scrutiny for unlisted companies is a valid point, but I can't recall if it was one of the main reasons we focused on in practice questions.
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Aaron
11 months ago
I remember discussing how the lack of marketability could definitely justify a lower P/E ratio, but I'm not sure if it's the most important factor.
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Moon
11 months ago
Hmm, I'm a bit confused by the wording of this question. I'll need to re-read it a few times and think through the different scenarios.
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Ruthann
11 months ago
I feel like I should remember the exact steps to plug in the numbers, but I'm second-guessing the demand curve formula. Is it correctly set up?
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Truman
11 months ago
Hmm, I'm not totally sure about this one. I'm trying to think through the different tactics ransomware might use. Denying traffic out of the victim's network until payment is received seems like a possibility, but I'm not certain that's the most common approach.
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Howard
11 months ago
I'm a bit confused by the encryption configuration part. I'll need to make sure I fully understand how to set that up to secure the secrets. Might be good to review the documentation on that.
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Yoko
1 year ago
This question is like a game of Tetris - you gotta fit the right pieces together to make it work. A, C, and F are the way to go. Although, I can't help but wonder if the exam writers just threw in a few wild cards to see who's really paying attention. Unlisted companies and their 'profit items' - what a wild ride!
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Dalene
1 year ago
A, C, and F are the winners here. Although, I have to say, the idea of an unlisted company being subject to less scrutiny and regulation just sounds like a recipe for disaster. Maybe they should toss in a few goats and a crystal ball to really seal the deal!
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Thersa
1 year ago
This is a tricky one! I'd go with A, C, and F. Gotta watch out for those sneaky answers that seem like they'd increase the P/E ratio, but actually decrease it. Can't fool me, exam writers!
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Elly
1 year ago
F) A profit item within the unlisted company's latest earnings which will not reoccur.
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Sage
1 year ago
C) Unlisted companies being generally smaller and less established.
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Tequila
1 year ago
I agree with F, one-time profit items can skew the ratio if not adjusted for.
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Jonelle
1 year ago
A) The relative lack of marketability of unlisted company shares.
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Kimi
1 year ago
Yeah, C seems important too, smaller and less established companies might have lower ratios.
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Dino
1 year ago
I think A makes sense, lack of marketability can definitely lower the P/E ratio.
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Theron
1 year ago
The correct answers are A, C, and F. The lower scrutiny and regulation (B) and the higher growth forecast (E) would actually justify an increase in the proxy P/E ratio, not a reduction.
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Veronica
1 year ago
F) A profit item within the unlisted company's latest earnings which will not reoccur.
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Breana
1 year ago
C) Unlisted companies being generally smaller and less established.
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Hailey
1 year ago
A) The relative lack of marketability of unlisted company shares.
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Thomasena
1 year ago
A, C, and F are the factors that would justify a reduction in the proxy P/E ratio. The lack of marketability and the smaller, less established nature of the unlisted company warrant a lower valuation, and a non-recurring earnings item should also be accounted for.
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Alica
1 year ago
Yes, the lack of marketability, smaller size, and non-recurring earnings all play a role in adjusting the ratio.
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Julianna
1 year ago
I think A, C, and F are the factors that justify a reduction in the proxy P/E ratio.
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Skye
1 year ago
I also think factor E could justify a reduction. Higher forecast earnings growth in the unlisted company should definitely be taken into account.
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Kent
1 year ago
I agree with Vernice. The lack of marketability, smaller size, and non-recurring profit item are all valid reasons for adjustment.
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Vernice
1 year ago
I think factors A, C, and F would justify a reduction in the proxy p/e ratio.
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