To calculate the market-to-book ratio, also known as the price-to-book ratio, we determine the market value per share using the net income, price-earnings ratio, and shares outstanding. With a book value per share of $9.60 and a calculated market value per share of $39.808, the market-to-book ratio is approximately 4.15.
To calculate the market-to-book ratio, also known as the price-to-book ratio (P/B ratio), we must first determine the market value per share of the firm's stock. This can be found by taking the net income and multiplying it by the price-earnings ratio, and then dividing the result by the number of shares outstanding. The calculation is as follows: (Net Income × Price-Earnings Ratio) / Shares Outstanding = Market Value per Share. In this case:
- Net Income = $84,900
- Price-Earnings Ratio = 16.4
- Shares Outstanding = 35,000
So, Market Value per Share = ($84,900 × 16.4) / 35,000 = $39.808 per share.
With the book value per share given as $9.60, the market-to-book ratio is calculated by dividing the market value per share by the book value per share, which would be:
Market-to-Book Ratio = Market Value per Share / Book Value per Share = $39.808 / $9.60 ≈ 4.15.
Therefore, the market-to-book ratio of the firm is approximately 4.15.