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(1) Price-to-earnings, (2) price-to-book equity, and (3) price-
to-assets. However, they disagreed to some extent on the weight
to be accorded each of the three ratios. As discussed supra, Mr.
Fuller used an equal weighting of the values derived using the
price-to-book and price-to-assets ratios, while rejecting the use
of the price-to-earnings ratio over concerns that it would
overstate value. Mr. Magee used an equal weighting of the values
found using the price-to-earnings multiple and the price-to-book
ratio. Mr. Magee did not use the price-to-assets ratio in
reaching his valuation conclusion and described it as a “check
point” for the other two ratios, rather than as the “principal
determinant of the value of a controlling interest.” However,
Mr. Magee noted, the price-to-assets ratio does provide
“additional stability” to the analysis by removing the effects of
variability in earnings and book equity.
We agree with Mr. Fuller that the use of the price-to-
earnings ratio may overstate the value of the estate shares, due
to the fact that a large portion of Peoples earnings was
attributable to investments in high yielding Treasury securities.
We also think the weighted average of the price-to-book and
price-to-asset ratios will be more likely to cancel out any
anomaly in the data for either ratio. Accordingly, in valuing
the estate shares under the guideline method, we look to the
price-to-book and price-to-asset ratios.
The mean, median, high, and low values for the guideline
companies examined by Messrs. Fuller and Magee are as follows:
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