The price-to-book ratio is for the most part a completely useless valuation method. Indeed, unless calculated personally, with a keen eye for detail and rigorous analysis of company finances, the ratio can be highly misleading. Reasons for wrong price-to-book valuation There are basically three main reasons why the price-to-book valuation is wrong. Firstly, the valuation includes items like goodwill and patents, intangible items that have no intrinsic value. The value of these items can quickly disappear. For value investors who use the price-to-book valuation method on the basis that the downside is limited if the company is trading at a…
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