Question

Which Price to book ratio would you rather have? (For an owner of a company, everything else is constant.)

A. A Market-to-Book ratio = 2

B. A Market-to-Book ratio = .5

C. A Market-to-Book ratio = 1

D. A Market-to-Book ratio= 0

E. A Market-to-Book ratio= -15.0

Answer 1

For an owner of the company who is already holsing shares of the company, it good to have high Market to Book ratio as his worth will be calculated based on the Market value of the shares held by him.

However, for a potential investor if, market value is more than book value the shares are overvalued.

From the above explanation it is clear that for a person holding shares of a company high Market to book value is beneficial. Therefore option A is the correct answer. ie Market to Book ratio = 2