Market to book ratios of value be misleading
In what circumstances would market to book ratios of value be misleading?
Expert
a) The ratio of Market to Book is quite useful, however it is just a rough estimation of liquidation and going concern values comparison. It is mainly due to the Market to Book ratio makes use of accounting-based book values. The real liquidation value of an organisation is likely to be little different than the value of book.
b) For example, the firm’s assets could be worth more or less than the value at which these assets are currently accepted on the company's balance sheet. Besides that the current market price of the bonds of the company and stock might also be different from the accounting value.
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