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CIMA Financial Strategy F3 Question # 106 Topic 11 Discussion

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CIMA Financial Strategy F3 Question # 106 Topic 11 Discussion

F3 Exam Topic 11 Question 106 Discussion:
Question #: 106
Topic #: 11

The directors of a unlisted manufacturing company have prepared a valuation of their company using the price-earning method.

Their calculation is:

Value if the company‘s equity = $6 million x 10 =$60 million where.

$6 million is the company’s reported profit before interested and tax in the most recent accounting period and

10 is the average price-earnings ratio for all listed companies

Which THREE of the following are weakness of this valuation?
A.

The equity result needs to be uplifted in recognition that this is an unlisted company.

B.

The price-earnings valuation method gives a value for the entire entity not Just a value of the equity.

C.

A forecast of sustainable profit should have been used instead of a historical figure

D.

Profit after tax should have been used in the calculation instead of profit before interest and tax.

E.

The price-earnings ratio should have been an average for companies in the same industry sector rather than alI listed companies

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Actual exam question for CIMA F3 exam by Orion2718 at Dec 17, 2025, 1:14:58 PM

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