The price to book value ratio (P/BV) is a helpful valuation technique when examining firms: A) with the same stock prices. B) that hold primarily liquid assets. C) with different production methods. D) with older assets compared to those with newer assets.
B) that hold primarily liquid assets. It’s late though…
Correct. But I also know for sure P/BV is ineffective for valuing firms in service industry. Agree? Don’t they hold primarily liquid assets?
P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values. A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm’s assets is significantly higher than their accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm to generate profits or cash for shareholders. This ratio also gives some idea of whether an investor is paying too much for what would be left if the company went bankrupt immediately. The book value, as it is conventionally computed, does not include intangible assets such as intellectual property and brands. Thus the book-value may not be an appropriate measure for many firms
cheers man. good luck with your prep. i still dont get BV thuogh. gonna look into some more info.
You guys seem like the only ones that are still up… I have a question for you too - Trying to calc HPY, keep getting it wrong: Quarter Value at Beg of Quarter Cash Inflow (Outflow) @ Beg of Quarter End Val 1 2.0 0.2 2.4 2 2.4 0.4 2.6 3 2.6 (0.2) 3.2 4 3.2 1.0 4.1 Quarterly HPR respectively - 1.0909 0.9286 1.3333 0.9762 How do I do calc these?
That didn’t come out right, should look like this : Quarter 1 - Beg Value : 2.0, Cash Inflow: 0.2, End Value: 2.4… HPR is listed as 1.0909 etc…
The main formula to use is: (End Value - Beg Value - Contributions) / (Beg Value + Contributions - Withdrawals) QUARTER 1 --> started with 2.0, contributed 0.2, and ended with 2.4 --> (2.4 - 2.0 - 0.2) / (2.0 + 0.2) = .0909 + 1 = 1.0909 QUARTER 2 --> started with 2.4, contributed 0.4, and ended with 2.6 --> (2.6 - 2.4 - 0.4) / (2.4 + 0.4) = -0.0714 + 1 = 0.9286 Rinse, Repeat
Book value provides a relatively stable measure of value that can be compared to the market price. For investors who mistrust the discounted cash flow estimates of value, it provides a much simpler benchmark for comparison. Book value may or may not be closer to the market value, and accounting standards for assets also vary from firm to firm. (At times, firms may use different methods for accounting depreciation.). A firm may have negative book value if it shows accounting losses consistently. Assuming consistent accounting standards across firms, P/B ratios can reveal signs of misvaluation across firms. Book values are not very meaningful for firms in service industries. Meaning labor industries. Financial industries are common for BV valuations. The disadvantages of using PBV ratios are: Book values are affected by accounting standards, which may vary across firms and countries. Book value may not mean much for service firms without significant fixed costs. Book value of equity can be made negative by a series of negative earnings, which limits the usefulness of the variable.
tozerrt Wrote: ------------------------------------------------------- > The main formula to use is: > (End Value - Beg Value - Contributions) / (Beg > Value + Contributions - Withdrawals) > > QUARTER 1 > --> started with 2.0, contributed 0.2, and ended > with 2.4 > --> (2.4 - 2.0 - 0.2) / (2.0 + 0.2) = .0909 + 1 = > 1.0909 > > QUARTER 2 > --> started with 2.4, contributed 0.4, and ended > with 2.6 > --> (2.6 - 2.4 - 0.4) / (2.4 + 0.4) = -0.0714 + 1 > = 0.9286 > > Rinse, Repeat Isn’t HPR = (End Value + Inflow - Beg Value)/Beg Value ? What formula is that? Ohhhh, I get it… 0.2 was ADDED by the INVESTOR ! Damn, all this while i was treating it like a dividend. (2.4+0.2-2)/2 = None of the above