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6.2 Lecture_12_Thursday_20_August

21 market price per share market to book ratio book

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Unformatted text preview: per share = N = = Pr ice P0 Ratio = Cash Flow Cash Flow per share = = 25 25 Market to Book (M/B) Ratio Market to Book (M/B) Ratio P M /B= BV ps P = Shareholders ' Equity N 26 26 The higher the value of M/B, the greater the esteem investors have of the firm Common Equity E Book Value per Share = = N N 1,552 = 250 = $6.21 Market Price per share Market − to − Book Ratio = Book Value per Share P0 = MV PBV = = 27 27 Book-to-Market Ratio • This ratio is the inverse of the Market­to­book ratio The M/B ratio tends to be favoured by US researchers. The lower the value of the B/M ratio, the more value investors put on the firm: • M should _________________________ Think back to finance’s “Objective Function” 28 28 Book-to-Market Ratio Book Value per Share M...
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