The market-to-book ratio is calculated by
A) dividing a firm's market value of total equity by the book value of total equity.
B) dividing a firm's market value of common equity by the book value of total equity.
C) dividing a firm's market value of common equity by the book value of common equity.
D) dividing a firm's market value of total equity by the book value of total debt.

Question

Quizplus · Accepted Answer

The market-to-book ratio is calculated by dividing a firm's market value of common equity by the book value of common equity. This ratio is used to evaluate how the market values a company relative to its book value, and a higher ratio would indicate that investors have a more positive view of the company's future growth prospects. Choice A is not correct because it includes all types of equity, not just common equity. Choice B is not correct because it only includes common equity, but not the book value of total equity. Choice D is not correct because it includes the book value of total debt, which is not relevant for the calculation of the market-to-book ratio.

The Market-To-Book Ratio Is Calculated by