Understanding the concept:-
With as many as evaluation measures the one is price-book ratio that helps in comparing the stock’s value with shareholder’s equity that is the company’s recent sheets of balance. It has some or the other utility in these days but the world and the way people think and people invest. Earlier as we know the market was in dominance by capital intensive firm which is most prior in owning factories rail track all of which has tangible worth.it seems to has some value on accounting book value but at most some of companies now create wealth through assets like brand names of which are indirectly connected in book value. It leads to astray manufacturing firms which has much value for their brand names not from basic size but from quality. The investors that look for some really hot stocks are not that only ones who trolls markets. Some of the investors always go about own business which looks for companies that bypassed markets. Some of the investors look beyond growth and earnings.
One measured is price-book ratio:-
Return on equity tries to price-book ratio (it is equal to total income by its book value).the companies which has higher return on equity they has higher price-book ratio. The next item which wary when we use the price-book ratio to give value to stock is that they make goodwill. Before this there were some dominating industries were there by the capital intensive. They hold a good market share as with the rising and growth of the economy. There are some worthwhile points like strong and smart employees’ great customer relationships, internal process are much efficient. As for now this is a booming industry as we can see the data sheets for the companies which are hot listed as they always helps us in evaluating the right stock for us. We can have a goof perception for these kinds of companies. Since the data sheets are available through the booker or as for now the emerging countries you can go for internet or can directly interact to the executives.
Whenever you look for price-book ratio always relate it to the return on equity.
Though we know that it isn’t very useful ,but it might be good sometimes mostly firms has liquid assets to their balance sheets. Mostly the revaluation part takes place quietly which helps to clear the current scenario. It also shows that how much change has come in marketplace.
Any firm can have solid price-book ratio until they has any bad loans shown on their books .
Henceforth you can calculate price-book ratio by taking current price of every share and then dividing It by book value of every share.
P/B= present price of share/ book value of share
Likewise the price-book ratio, the lower will be the price-book ratio the better and better will be the quality. The value investors always use the low price-book ratio in the stock screen, so to identify the potential candidates.