Evaluating the PE Ratio

As we noted, the evaluation of any ratio must be undertaken with great care. For example, did you know that if we look at two companies that are exactly the same except for the amount of debt, the company with higher debt will have a lower PE ratio? A recent article in McKinsey Quarterly outlines the reason this occurs, but more importantly points out that that a management goal of increasing the PE ratio does not generally result in shareholder wealth creation. https://www.mckinseyquarterly.com/Corporate_Finance/Valuation/Why_bad_multiples_happen_to_good_companies_2967