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Tuesday, November 14, 2006 11:16:00 AM
here's how you can do that...
There is an easier way to gauge value. Price-to-book value (P/B) is the ratio of market price of a company's shares (share price) over its book value of equity. The book value of equity, in turn, is the value of a company's assets expressed on the balance sheet. This number is defined as the difference between the book value of assets and the book value of liabilities.
Assume a company has $100 million in assets on the balance sheet and $75 million in liabilities. The book value of that company would be $25 million. If there are 10 million shares outstanding, each share would represent $2.50 of book value. If each share sells on the market at $5, then the P/B ratio would be 2 (5/2.50).
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