Monday, July 2, 2012

Market to Book Ratio Formula

A retailer currently values its stock price at  $75 per share.This large retailer has $10 billion in total assets. 

To get more detailed, its balance sheet currently shows $1 billion in current liabilities, $3 billion in long-term debt, and finally $6 billion in common equity outstanding.

The retailer also has 800 million shares of common stock currently outstanding. What is the retailers market value- to-book ratio? Calculate this ratio using the above information. 

Accounting Answer:

Market to Book Ratio Formula Market Value Per Share/(Common Equity/Outstanding Shares)

FMV of Stock Price  =  $75
Common Equity of retailer =  $6,000,000,000
Current Outstanding Shares  =  800 Million

Next step, plug the numbers into the formula described above for Market/Book Ratio:

= Market value per share/ (Common Equity/Outstanding Shares)
= $75/($6,000,000,000/$800,000,000)
= $75/7.5

Answer to Accounting Problem: Market to Book Ratio = 10

1 comment:

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