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    2 Replies Latest reply on Feb 20, 2008 5:58 AM by yesanaa

    How to get the price using price ratio model?

    yesanaa Newbie
      How to get the price using price ratio model?
        • Re: How to get the price using price ratio model?
          LUCKIEST Guide
          Yesasaa, Tell us more. Does this help

           

          General Issues in estimating and using price-book value ratios

          Measurement

           

          The book value of equity is the difference between the book value
          of assets and the book value of liabilities.

           

          The measurement of the book value of assets is largely determined
          by accounting convention.

           

          Book Value versus Market Value

           

          The market value of an asset reflects its earning power and expected
          cashflows.

           

          Since the book value of an asset reflects its original cost, it
          might deviate significantly from market value
          if the earning power
          of the asset has increased or declined significantly since its
          acquisition.

           

          Advantages of using price/book value ratios

           

          It provides a relatively stable, intuitive measure of value which
          can be compared to the market price.

           

          Given reasonably consistent accounting standards across firms,
          price-book value ratios can be
          compared across similar firms for
          signs of under or over valuation.

           

          Even firms with negative earnings, which cannot be valued using
          PE ratios, can be evaluated
          using price-book value ratios.

           

          Disadvantages of using price-book value ratios

           

          Book values, like earnings, are affected by accounting decisions
          on depreciation and other variables.
          When accounting standards
          vary widely across firms, the price-book value ratios may not
          be
          comparable across firms.

           

          Book value may not carry much meaning for service firms which
          do not have significant fixed assets.

           

          The book value of equity can become negative if a firm has a sustained
          string of negative earnings reports,
          leading to a negative price-book
          value ratio.

           

          LUCKIEST