What circumstances would market to book value ratios, Financial Management

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Under what circumstances would market to book value ratios be misleading?  Explain.

The Market to Book ratio is helpful, however it is only a irregular approximation of how liquidation and going concern values compare. This is for the reason that the Market to Book ratio uses accounting-based book values.  The definite liquidation value of a firm is probable to be different than the book value.  For example, the assets of a firm perhaps worth more or less than the value at which they are currently carried on the company's balance sheet.  Additionally, the current market price of the company's preferred stock and bonds may as well differ from the accounting value of these claims.

 


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