Series 79 practice questionmediumPeer Group Adjustments
When forming a peer group for valuation analysis, which adjustment is MOST appropriate if one company has unusually high pension liabilities?
- AAdjust enterprise value to include pension liabilities✓ Correct answer
- BExclude the company from the peer group
- CIgnore the pension liability as a non-operating item
- DAdjust the peer group’s EBITDA downward
Explanation
Why A — Adjust enterprise value to include pension liabilities
Enterprise value should include significant pension liabilities for comparability. Exclusion is unnecessary if adjustments are made. Ignoring the liability misstates value, and adjusting EBITDA is incorrect.
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