Which of the following statements is the LEAST ACCURATE with respect to the rationales of using the price to sales (P/S) ratio for valuation purpose?

A. The P/S ratio may be misleading if used for cyclical companies.
B. While it is possible for earnings to be negative, sales are always positive, and thus P/S can be used even during periods of accounting losses.
C. It is more unlikely to manipulate sales figures than it is for earnings and book value, and thus P/S should be used.
D. While EPS reflects company choices regarding operating and financial leverage, sales are generally independent of such choices and thus the P/S ratio is a much better ratio for comparison purpose.

Correct Answer: A

The rationale for using P/S for cyclical companies is even stronger. While it is true that sales will fluctuate for a cyclical company, other metrics such as earning will fluctuate even more, often times being negative. In such cases, the P/S ratio would be more reliable than P/E.