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Module V· Relative P/E FrameworkAdvanced
Question

What are the limitations of the relative P/E framework: when should you not rely on it?

Answer

Do not rely on relative P/E when earnings are negative, cyclical, distorted by one-offs, or when PPA amortization, financing mix, tax attributes, synergies, or integration costs are material. It also ignores ROIC, leverage, balance-sheet risk, and cash flow. Use it for a quick directional check, then build a full A/D and value-creation analysis.

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