What is price to book ratio | Advantages & Disadvantages of P/B ratio | P/B ratio explained

From this video you will learn What is price to book ratio or P/B Ratio explained and how it works, Understanding of Price to Book ratio, Advantages & Disadvantages of Price to Book ratio in stock market for beginners in english.
please watch our video on P/E ratio: https://youtu.be/4pkwUPwPC2A

please watch our video on EPS: https://youtu.be/Q_9sPqLlUDk

Price to Book ratio:
Price to book ratio (P/B ratio) is calculated by dividing the company’s stock price per share by its book value per share. Investors use several metrics to determine whether investing in that particular stock will match up with their investment objectives or not.
For example, Company XYZ has listed 12,50,000 worth of assets and Rs. 10,00,000 as its liabilities in the balance sheet. Then the book value of the company can be calculated as
12,50,000 – 10,00,000 = 2,50,000
If there are 10,000 outstanding shares of the company, the book value per share is 2,50,000/10,000 is Rs 25. If the market price of the stock is Rs 25, then the P/B ratio is 1.
Understanding of P/B ratio:
The typical market value of a company is higher than its book value and therefore it results in the ratio higher than 1. The converse also holds true. This phenomenon has 2 ways of interpreting.
Advantages of P/B ratio:
- Book value is a cumulative amount that is usually positive even when the P/E multiple is negative because of the negative earnings. So, it means that P/B can be used when P/E cannot be used.
- Book value is more stable than EPS, so it may be more useful than P/E when EPS is volatile.
- For market firm assets, P/B is more useful than the P/E multiple.
- Sometimes P/B is useful in valuing the companies that are expected to go bankrupt or out of business.
Disadvantages of P/B ratio:
- The value of intangibles are not captured in the assets such as brand value, good will, the human capital of service companies etc.
- P/B ratio is misleading when there are significant differences in the production methods of the assets among the firms.
- Inflation and technological change can cause the book and market value of the assets to differ significantly, so the book value is not an accurate measure of value of shareholders investments.
- The book value considers only the original purchase price of the asset such as equipment and not the current market price. This could reduce the accuracy of the value.

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Видео What is price to book ratio | Advantages & Disadvantages of P/B ratio | P/B ratio explained канала SimplyInfo