## 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.

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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