Which of the following will affect observed price-to-book ratio?

I. Expected ROCE
II. Business risk
III. Risk free rate of interest
IV. Expected growth

A)I, II, III, and IV
B)II, III, and IV
C)II and IV
D)I, II, and IV

Question

Which of the following will affect observed price-to-book ratio?

I. Expected ROCE
II. Business risk
III. Risk free rate of interest
IV. Expected growth

A)I, II, III, and IV
B)II, III, and IV
C)II and IV
D)I, II, and IV

Quizplus · Accepted Answer

The price-to-book ratio can be influenced by a variety of factors including expected return on capital employed (ROCE), which affects profitability and thus investor valuation; business risk, which impacts the discount rate and perceived value; the risk-free rate of interest, which influences the cost of capital and investment attractiveness; and expected growth, which affects future earnings potential and thus valuation.

Which of the Following Will Affect Observed Price-To-Book Ratio