Abstract
The P/E ratio is a widely used tool for valuation of common stock. One of its prime virtues is the simplicity of calculation. In this article the author suggests that in some situations a more complex calculation, but analogous to a P/E ratio, gives more useful information. The two situations reviewed are for a firm with an abnormal liability and for a firm with an abnormal amount of cash available for distribution. In these situations, adjustments to the P/E calculations of the type illustrated are desirable.
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