Market to Book Ratio Ratios Homework Help, Tutoring
Market to Book Ratio Assignment Help, Market to Book Ratio Tutor Help:
Market to Book Ratio:
It is a financial ratio that compares the market price of the share and its book
value. The market price is the current stock price of the company as quoted in the
market. The book value can be computed from the balance sheet by deducting the total
liabilities from the total assets and dividing the result by the number of outstanding
shares. Alternatively, the company’s market capitalization can be divided by the
company's book value to arrive at the Market to Book ratio. The book value is always
computed on the basis of the company’s historical cost or value as per books/accounts.
It is computed as:
Market value of the company
Book value of the company
or
Market price of the stock
Book value of the stock
Book value of the company
or
Market price of the stock
Book value of the stock
The ratio is used to measure the worth of the company as per the market as compared
to the amount of money initially invested. The ratio is used by investors to assess
whether a particular stock or company is undervalued or overvalued. A ratio of less
than 1 generally indicates that the company is undervalued and good investments
buy. Lower the market to book ratio, the better the value for an investor.
Example:
If a company's stock price is quoting at $20 and it has a book value per share of
$25, its market to book ratio would be:
$20
$25
0.80
$20
$25
0.80
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