When looking at the average price/earnings ratio across a group of firms, the firms with negative earnings will all drop out of the sample because the price/earnings ratio cannot be computed. Why should this matter when the sample is large? The fact that the firms that are taken out of the sample are the firms losing money implies that the average PE ratio for the group will be biased because of the elimination of these firms. As a general rule, you should be skeptical about any multiple that results in a significant reduction in the number of firms being analyzed.
