Price to Book Value (P/BV) or Price to Equity ratio
P/BV = Market Capitalization / Book Value - Shareholders' Equity (COGS, SG&A)
This ratio is used to compare a stock's market value (Market Capitalization) to its book value (shareholders' equity in the Balance Sheet).
Industries like banking, manufacturing and automobiles are basically asset intensive in nature and therefore, looking at book value as a tool for making investment decision makes good sense.
NB:
- If the market value of the equity refers to the market value of equity of common stock outstanding, the book value of common equity should be used in the denominator.
- If there is more than one class of common outstanding shares, the market value of all classes (even the non-traded classes) needs to be factored in
Industries like banking, manufacturing and automobiles are basically asset intensive in nature and therefore, looking at book value as a tool for making investment decision makes good sense.
NB:
- If the market value of the equity refers to the market value of equity of common stock outstanding, the book value of common equity should be used in the denominator.
- If there is more than one class of common outstanding shares, the market value of all classes (even the non-traded classes) needs to be factored in
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