Indentify and explain one advantage of P/S over P/E as a valuation tool.
P/S is calculated from total sales (revenue) a business has generated in an accounting period, whereas, P/E is the net figure of these sales, excluding taxes and expenses. Therefore, P/E can be easily manipulated, because there’s a long way down from total sales to the earnings.
Moreover, P/E can be a negative if the company paid more expenses and taxes that it earned from sales. For these reasons, P/S is viewed as a more stable metric used to value and compare companies.
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