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In the context of relative valuation, the PB ratio should always be greater than the EV/Capital...

In the context of relative valuation, the PB ratio should always be greater than the EV/Capital ratio.

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True

False

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Answer #1

The given statement is false because enterprise valuation to the overall capital value can be higher than the price to book value because if the market price of the stock is highly undervalued then enterprise valuation to the overall capital value would be higher than price to book value.

There are many companies whose Market price is comparatively lower than the intrinsic value of their shares and those market price are subsequently lower than the book value of the shares because their book value have been placed at the historical cost and those companies are highly likely to have a lower 'price to book value' and those companies if valued properly according to the enterprise valuation method has nothing to do with the market price, so they can be having a higher enterprise value to the capital.

The given statement is FALSE.

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