PRICE/BOOK (P/BV)

This ratio is widely used in analyzing Financial Services Companies & Bank’s, the assets of these companies are in form of cash, deposits or marketable securities its relatively easy to value the accounting value. For instance if we take case of Indian banking industry, the PSU banks have there P/BV value ( P/BV = CMP*No of outstanding Shares/ Accounting value of assets) less than one indicting undervaluation, but historically the ratio’s have been at these levels, the probable reason could be :-

1) Inferior quality of assets.
2) High Level of NPA’s.
3) Lack of fee based revenue as compared to its Private counterparts.
Every ratio must be taken with a pinch of salt.
This ratio is widely used by corporate raider’s to analyze potential target, force a spinoff & strip the assets.orate

Lesson's in Excellence ( Valuation- Vol 1)

I will be posting video's which are focusing on Asset Valuations, this is the 1'st one of them