Price to Book (P/B) Value Ratio and Equity Valuation
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P/B = market price per share / book value per share
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Book Value per Share = Common Equity / Common Shares Outstanding
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Common Equity = Total Equity - Preferred Equity
Positives of P/B
- Book value is usually positive.
- Many financial services companies trade close to their book values.
- Book value is less volatile than earnings.
- Stock return trends can be analyzed within the context of differences in P/B values.
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