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Lvalue book value market value of equity market value of debt book value of equity book value of debt.
Justified price to book value formula. It uses the sustainable growth relation and the observation that expected earnings per share equal book value times the return on equity. Book value per share assets liabilities number of shares. If there are 10 million shares outstanding each share would represent 2 50 of book value.
The book value of that company would be calculated simply as 25 million 100m 75m. Justified price to book value p b this ratio is probably one of my favourites due to the fundamental comparisons at its core between return on equity roe and the cost of equity also referred to as the required return on equity. So the market is over valued by about 22 according to the formula.
Put this into the formula and the justified p e is 14 0x. Return on equity roe is a financial ratio that measures profitability and is calculated. Definition lwhile the price to book ratio is a equity multiple both the market value and the book value can be stated in terms of the firm.
Price to book p b stock price per share book value per share book value per share total assets total liabilities number of outstanding shares you can find this information on a company s financial statements. To arrive at book value per share divide the book value by the number of shares outstanding as shown in the formula below. Price to book value p b ratio is a financial ratio measuring a company s market value to its book value.
The justified price to book multiple or justified p b multiple is a p b ratio based on the company s fundamentals. Here s the formula of price to book value price to book value ratio market price per share book value per share. The market closed at 2 114 07 recently.
The justified p b ratio is based on the gordon growth model. Assuming a constant rate of growth the justified forward price to earnings ratio can be found using the following equation. The formula to measure the price to book value is as follows.
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