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Answer: Earnings yield
## Explanation When dealing with companies that have losses or zero earnings, traditional P/E ratios become problematic: - **Justified P/E** and **Forward P/E** both become undefined or meaningless when earnings are zero or negative, as they involve dividing by earnings. - **Earnings yield** (E/P) is the most suitable because: - It can handle negative earnings (negative earnings yield) - It can handle zero earnings (zero earnings yield) - It provides a meaningful ranking across all companies regardless of profitability - It's simply the inverse of the P/E ratio Earnings yield allows for a consistent comparative analysis across profitable, unprofitable, and break-even companies in the same industry.
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An analyst is creating a ranking of companies in the same industry. Most of the companies are profitable, but a few have losses and one has zero earnings. Which of the following is most suitable for a comparative analysis?
A
Justified P/E
B
Forward P/E
C
Earnings yield