A high price to book ratio may indicate which one of the following?
A) The firm expanded its plant and equipment in the past few years.
B) The firm is doing a better job controlling its inventory expense than other related firms.
C) Investors may believe that this firm has opportunities of earnings a rate of return excess of the market capitalization rate.
D) The firm's P/E ratio is too high.

Question

Quizplus · Accepted Answer

A high price to book ratio indicates that investors believe the company has opportunities to earn a rate of return that exceeds the market capitalization rate, meaning that they see potential for the company to generate higher profits in the future. It does not indicate anything about plant and equipment expansion or inventory expense control and is not directly related to the P/E ratio.

A High Price to Book Ratio May Indicate Which One