What is 1. P/E ratio 2. Market-to-Book ratio

What is

1. P/E ratio 2. Market-to-Book ratio

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Expert Solution

Answer:

1. P/E Ratio:
P/E Ratio calcuates the Market Price shares in comparison to Earning per share. Price Earning Ratio is calculating arket price per share with Earning per share.

P/E Ratio = Market Price per share / Earning per share

Price Earning ratio indicates the price which market is ready to pay against its Current earning per share. A higher Price Earning ratio is preferred in comparison to a lower Price Earing ratio, as it indicates higher growth in the near future.

2. Market-to-Book Ratio:
Market to Book Ratio is calculated to copare the market value with its Book Ratio. It is calculated by dividing Market Value with the Book Value.

Market-to-Book Ratio = Market Capitalization / Book Value

Market Value is the value in the market i.e. the amount which can be recovered on sale in the market. Whereas, Book Value is the value in the Book of accounts or Historical value. A higher ratio indicates the value in the market is moe than the Book Value.

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