CFA Level I · CFA Level I Exam · Relative Value Equity Valuation Approaches
A company has 20 million shares outstanding, a share price of $36, and shareholders' equity of $480 million. The company's price-to-book ratio is closest to:
The price-to-book ratio is 1.5. Market capitalization is $720 million (20 million shares at $36), and dividing by book equity of $480 million gives 1.5. Equivalently, book value per share is $24 and $36 divided by $24 equals 1.5.
- A1.0
- B1.5Correct
- C2.4
Explanation
Market capitalization = 20 million × $36 = $720 million. P/B = 720/480 = 1.5. Check: book value per share = 480/20 = $24; 36/24 = 1.5. Using 480/720 gives 0.67, and 2.4 is an unrelated figure.
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