From the course: Finance Foundations: Business Valuation

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Equity multiples

Equity multiples

From the course: Finance Foundations: Business Valuation

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Equity multiples

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- A favorite ratio among followers of the stock market is the price-to-book ratio, computed as total market value of the company divided by the book value of the company's equity. Now the market value of the company is the price you would have to pay to buy all of the ownership shares of the company. This is sometimes called the Company's Market Capitalization. For example, on October 30th, 2015, the market capitalization of Apple was $665 billion, just in case you were thinking of saving up your money to buy the entire company. The book value of the company's equity is equal to the amount that the owners of the company have invested in the company, either directly or through having profits retained in the company to pay for expansion. The book value of Apple's equity on October, 2015 was 126 billion. This is the amount that the Apple shareholders have invested in the business. The price-to-book ratio reflects…

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