Q38. Price to book ratio
How is the price to book ratio calculated?
A38.
Price to book ratio
= Market to book ratio = (A) / (B)
Where,
(A) = Market price of common stock per share
(B) = Book value of common stock per share
[Entity 38-a]
Market price of common stock per share = $46.20
Book value of common stock per share = $21.00
Price to book ratio
= $46.20 / $21.00 = 2.2
[Entity 38-b]
Market price of common stock per share = $47.50
Book value of common stock per share = $25.00
Price to book ratio
= $47.50 / $25.00 = 1.9
[Note]
Price to book ratio is higher for Entity 38-a than for Entity 38-b.
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