A major reason why many companies have the high valuation ratios (ratio of stock market value to balance sheet net asset value)is:
A)Stock market irrationality which results in some companies becoming overvalued
B)The undervaluation of intangible resources on companies' balance sheets
C)Stock market doubts over the valuation of financial assets by companies and their auditors
D)The rise of intellectual property valuation as a result of recent patent litigation.

Question

Quizplus · Accepted Answer

Valuation ratios often result in high valuation ratios because balance sheets usually only account for tangible assets, while intangible resources such as brand recognition, patents, and customer relationships are not accounted for. The market recognizes the potential value of these intangible assets and reflects it in the company's stock price, resulting in a higher valuation ratio.

A Major Reason Why Many Companies Have the High Valuation