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Market To Book Ratio

Market to Book Ratio Assignment / Homework Help
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

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

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