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The gaming industry is notorious for being full of fads. Games tend to become popular very soon. However, their popularity dwindles at a greater pace as the next attraction hits the market. This is the reason that gaming customers have been known to be fickle and inconsistent. As a result, building a multi-billion dollar in […]
Predicting Bankruptcy in Organizations
Bankruptcy is a state in which firms are not able to meet their obligations to internal as well as external stakeholders. It is for this reason that bankruptcy prediction is of utmost importance. Stakeholders like employees, suppliers, customers, etc. could gain a lot if they had a method for predicting the likelihood of a company […]
Disadvantages of Private Equity Investment in Sporting Franchises
In the previous article, we have already seen that private equity firms are making a beeline in order to invest in sporting franchises. This is happening because private equity investments seem to have reached the saturation point in other industries. The sporting industry is providing an opportunity for high growth. This is the reason why […]
Advantages of Defined Contribution Plans
The past couple of decades has seen tectonic shifts in the way pension plans are being funded. Investors all over the world have been encouraged to shift from defined benefit pension plans to defined contribution pension plans. In the past, defined contribution plans were not considered to be pension plans at all. Instead, defined contribution […]
Different Asset Classes in which Pension Funds can Invest
Pension funds have a very large amount of money at their disposal. However, that does not mean that the management of these funds can deploy this money as per their will. Pension funds are highly regulated and the asset classes in which they can invest in are limited. Over the years, the limitations have been […]
Price to Book Value = Current Market Price / Total Assets – Intangible Assets
The value of assets is taken from the most recently published balance sheet.
The price to book value ratio looks at an immediate liquidation scenario. Investors therefore compare the price that they are paying for the company against what they would receive if the business shut operations right away.
The price to book value ratio can be used to make some serious interpretations about the business of the company and how the market is reacting to it. Here are some of the common interpretations made on the basis of price to book value ratio:
The analyst must therefore look at a low price to book value ratio as a starting point to understand which of the two is the reality.
Investors who had an eye on the Price to Book Value ratio found that even if the company wound up its operations at its book value, they would still be left with more book value per share than the then prevailing market price per share. Such bets are usually risky because it is difficult to trust the book value stated on financials that have been admitted to be doctored with.
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