A Why might a firm trade at a pricetobook ratio PB greater t

A. Why might a firm trade at a price-to-book ratio (P/B) greater than 1.02 B.If the price-to book value per share is less than one, what does that mean\'?

Solution

Price to book ratio = stock price/ book value of stock

Book value = (asset – liability)/ number of o/s common shares

Pls refer above formula, it is clear that the ration measures, how much the investor is paying for each dollar of asset of the company.

If the ratio is greater than 1 that means, the share is not worth its price or the stock is overvalued. More over if the ratio is less than 1 that means the stock is undervalued.

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Hope this answer your query.

Feel free to comment if you need further assistance. J