Heuristics and framing impact the way managers and analysts value firms. Indeed, most rely on valuation heuristics involving P/E, PEG, and price-to-sales more than they rely on the valuation techniques taught in finance courses.

Several factors contribute to the reliance on valuation heuristics instead of the fundamental valuation techniques taught in textbooks. Heuristics are simpler to use: P/E, PEG, and price-to-sales require very few variables and involve simple formulas. As such they are relatively intuitive. The DCF-based analyses taught in text-books require far more detail than the heuristic techniques, involve more complex formulas, and are less intuitive.

Although the equations upon which valuation heuristics are based are identities that hold by definition, their application is frequently subject to bias. The sources of these biases stem from poor assumptions made in respect to inputs for P/E, PEG, and price-to-sales. Biases in traditional discounted cash flow valuation arise in connection with the cash flows themselves, for example, excessive optimism, or misframing, as is the case with the way free cash flows are defined.

Finally, analysts face agency conflicts. They need to manage relations with the managers of the firms they cover. Hence, they might choose valuation heuristics strategically, in order to arrive at numbers that will please managers.