The MB ratio can be computed easily by dividing the firm’s market value of common equity at a…

The MB ratio can be computed easily by dividing the firm’s market value of common equity at a point in time by the book value of common equity from the firm’s most recent balance sheet. For example, on December 31, 2012, PepsiCo’s market value was $105,656 million ($68.43 per share The MB ratio can be computed easily by dividing the firm’s market value of common equity at a point... 1,544 million shares) and PepsiCo’s 2012 book value of common shareholders’ equity was $22,417 million (Appendix A). Thus, PepsiCo was trading at an MB ratio equal to 4.7 ($105,656 million/$22,417 million). The MB ratio measures market value as a multiple of accounting book value at a point in time. The MB ratio reflects what the market value is, but it does not tell us what the ratio should be given our estimate of intrinsic value.

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