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What does a high price-to-book ratio typically suggest?

  1. A The market values the firm well above its accounting net assets, often for growth or intangibles
  2. B The company is undervalued
  3. C The company has high debt
  4. D The book value is misstated
Answer

The market values the firm well above its accounting net assets, often for growth or intangibles

Book value understates firms whose value lies in intangibles such as brands and intellectual property, which are not capitalised.

All CFA MCQs

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