Discussion Topic:
Discussion: Market Value Versus Book Value (Ch.2)
Purpose:
This assignment is intended to help you learn to evaluate Market Value and Book Value and offer reasons why they may differ for different companies.
Overview:
The textbook emphasizes that Managers and investors will frequently be interested in knowing the value of the firm. The fact that balance sheet assets are listed at cost means that there is no necessary connection between the total assets shown and the value of the firm. Indeed, many of the most valuable assets a firm might have - good management, a good reputation, talented employees - don't appear on the balance sheet at all... Similarly, the shareholders' equity figure on the balance sheet and the true value of the stock need not be related.
A stock's Market-to-Book ratio, often referred to as the Price-to-Book ratio, compares the market value of the firm's investments to their cost.
Market perception of a firm's underlying assets exhibits a wide range. Is there a Market-to-Book ratio that is too high or too low? Which company would you feel most comfortable lending to and why? Need Assignment Help?
Action Items
1. Read the Discussion Guidelines.
2. For the firms identified below, retrieve each Price/Book measure from the Valuation screen in Yahoo! Finance. Examine its current level and historical trend.
Clorox Company: CLX
CVS Health Corporation: CVS.
Note: Yahoo's Price/Book measure is third from the bottom, Price/Book (mrq).