Issues with Using Harmonic Means in Business Valuation

Authors

John Doug Barrett Ph.D., University of North AlabamaFollow
Brett A. King, University of North AlabamaFollow
Peter Williams, University of North AlabamaFollow

Abstract

The harmonic mean is a measure of central tendency for a distribution or data set. It is used frequently for ratios, such as price/earnings (P/E) ratios in financial and valuation analysis. Use of the harmonic mean is appropriate when small fractional observations are not present, but is not resistant to small ratios. In this paper, we illustrate the need for caution when using harmonic means using symmetric and skewed distributions.

Recommended Citation

Barrett, John Doug Ph.D.; King, Brett A.; and Williams, Peter (2017) "Issues with Using Harmonic Means in Business Valuation," Journal of Business, Industry, and Economics: Vol. 22, Article 3.
Available at: https://roar.una.edu/jobie/vol22/iss1/3