Book Value Multiple Formula

Book value may also be.

Book value multiple formula. This illustrates that the market. By pegging the purchase price to a multiple of book value the buyer is protected against a decline in the value of the business between the signing of the purchase and sale agreement and the completion date of due diligence. The influence of the return on equity and the cost of equity can be consolidated in one measure by taking the difference between the two a measure of excess equity return.

Based on the above formula calculation of book value of equity of rsz ltd can be done as 5 000 000 200 000 3 000 000 700 000 8 900 000. The stock price per share can be found as the amount listed as such through the secondary stock market. The mb multiple will be higher than 1 if a company delivers roe higher than the cost of equity r.

If book value is higher than half the selling price some buyers will use a five to six multiple. Therefore the company s common equity is 8 900 000 as on the balance sheet date. Let us now apply price to book value formula to calculate citigroup price to book value ratio.

When compared to the current market value per share the book value per share can provide information on how a company s stock is valued. Price to book value ratio of citigroup. The price book value ratio is also influenced by the cost of equity with higher costs of equity leading to lower price book value ratios.

If the value of bvps exceeds the market value per share the. If there are 10 million shares outstanding each share would represent 2 50 of book value. As the accounting value of a company book value can have two core uses.

If we assume a zero growth rate the equation implies that the market value of equity should be equal to the book value of equity if roe r. First we require citigroup s balance sheet details. It shall serve as the total value of the assets of the firm or of the company that stockholders would theoretically receive if the firm or the company were to be liquidated.