Protective Capital Structures Corp. (fka PCSO)

[neilhk]

Price to Book Ratio

This would be an important valuation metric imo, if, as/ when HCPC gets capitalised through the sale of the convertible preferred shares. The financial sector/ banking uses this ratio a lot to assess whether the stock price reflects the assets (cash/ loans etc) owned by the organisation in the share price or not. Whilst references focus on banks, think this relates to any capital-intensive, finance related business imo.

Need to also take into account other factors, including preferred shares after conversion (i.e. full dilution) to common shares as well as any company debt before calculating the ratio.

http://www.pathtoinvesting.org/experts/research_stock/research_058.htm

Price-to-book ratio
Many analyst reports cite the price-to-book ratio, which compares the price of a share to its book value, which is the company's net assets minus its outstanding debt. You'll often see this multiple cited on the first page of a report, along with other major measures of stock valuation. Book value is supposed to represent the value per share if, today, the company shut down operations, paid off its debts, and its assets were sold off. As such, the usefulness of book value depends significantly on the industry.

A software company, for example, may have few tangible assets, so its book value may be low, making the price-to-book ratio seem very high. Meanwhile, a bank may have all its assets in investments that are easy to liquidate at current worth, so its book value will be very near the company's actual value to investors. Today, many companies might seem vastly overpriced if evaluated only on their book value, since they lack tangible assets, even if they produce valuable services or products. Furthermore, a company's profitability depends on the usefulness of its assets: $1 million of outdated inventory is a significantly different asset than $1 million of the latest model.

So even though the price-to-book ratio may get front-page attention on an analyst report, its significance in the report depends on the company and industry.

Debt-to-equity

Book value addresses an important factor in company valuation: debt. Analysts also examine the role of debt in book value through a ratio called debt-to-equity, which is the book value divided by the debt. If the analyst feels the company is carrying too much debt, it could affect the recommendation.

also see:

http://en.wikipedia.org/wiki/Price-to-book_ratio

Extract:

"P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values."

and:

http://www.investopedia.com/university/ratios/investment-valuation/ratio2.asp

"It is probably more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks."

GLTA