Chartered Financial Analyst Level 1

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Explanation:

The Price-to-Book (P/B) ratio for the company is calculated as $30 / $40 = 0.75, which exceeds the historical benchmark of 0.6. This indicates the shares are overvalued based on the P/B ratio.

Option B (P/E ratio): The P/E ratio is $30 / $3 = 10, below the historical benchmark of 12, suggesting undervaluation.
Option C (P/CF ratio): The P/CF ratio is $30 / $4 = 7.5, below the historical benchmark of 8, also indicating undervaluation.

Thus, the correct answer is A, as the P/B ratio is the only multiple where the current value exceeds the benchmark, signaling overvaluation.

Explanation:

The Price-to-Book (P/B) ratio for the company is calculated as $30 / $40 = 0.75, which exceeds the historical benchmark of 0.6. This indicates the shares are overvalued based on the P/B ratio.

Option B (P/E ratio): The P/E ratio is $30 / $3 = 10, below the historical benchmark of 12, suggesting undervaluation.
Option C (P/CF ratio): The P/CF ratio is $30 / $4 = 7.5, below the historical benchmark of 8, also indicating undervaluation.

Thus, the correct answer is A, as the P/B ratio is the only multiple where the current value exceeds the benchmark, signaling overvaluation.

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An analyst evaluates a company's historical price multiples and gathers the following data:

Current EPS: `$3.00`

Current Cash Flow per Share: `$4.00`

Current Book Value per Share: `$40.00`

Historical P/B: 0.6

Historical P/E: 12.0

Historical P/CF: 8.0 Given the current share price of `$30`, the company's shares are most likely overvalued based on which of the following multiples?

Exam-Like

Price-to-Book (P/B) ratio

77.8%

Price-to-Earnings (P/E) ratio

11.1%

Price-to-Cash Flow (P/CF) ratio

11.1%