Accrual Valuation Ratios

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Definition

Valuation ratios that consist of accrual accounting metrics (ie. earnings rather than cash flow). Accrual accounting valuation ratios include price to earnings, price to avg earnings, price to sales, price to operating earnings, etc. These ratios are used to evaluate companies where accrual accounting practices smooths out short term fluctuations in cash flows, thereby providing a better approximation for future cash flows. Accrual ratios for valuations can also be preferred when accounting assets are insufficient predictors of economic assets.

For more information on evaluating valuation multiples similar to this, please see our original white paper research : Making Sense Of Valuation Multiples.

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