A Study of the Price to Book Relationship

The price to book value ratio is important because it draws together the external and internal factors of price, completing the cycle of market and company analysis, for the price-earnings (P/E) ratio is the stock market aspect of a company and the return on equity is the stockholder's vindicat...

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Bibliographic Details
Published in:Financial analysts journal 1995-01, Vol.51 (1), p.63-73
Main Author: Block, Frank E.
Format: Article
Language:English
Subjects:
Book value
Corporate profits
Dividends
Earnings per share
Equity
Feature Articles 1955-1964
Financial advisers
Influence
Mathematical constants
Net income
Price earnings ratio
Profitability
Profitability ratios
Ratios
Return on equity
Securities markets
Statistical analysis
Stock exchanges
Stock prices
Studies
Valuation
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Summary:The price to book value ratio is important because it draws together the external and internal factors of price, completing the cycle of market and company analysis, for the price-earnings (P/E) ratio is the stock market aspect of a company and the return on equity is the stockholder's vindication. A study examines some of the relationships between profitability, the P/E ratio, growth, and volatility of earnings, among other things, and discusses the peculiar behavior of P/E ratios. The study of 30 Dow Jones Industrial Average stocks hardly provides the reader with the sort of news that impels him to run into the board room. Yet, throughout the study profitability shines forth as a clear beam of light, leading the way to the price paid for equity assets. Return on equity appears as a direct influence on the P/E ratios, reemerges as a major cause of growth and is seen in a consistent pattern with earnings stability. Even payout is controlled by expectations of profitability.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v51.n1.1860