- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 23. Market-Based Valuation: Price and Enterprise Value Multiples
- Subject 5. Price to Book Value
CFA Practice Question
The P/B multiple of a service company is usually ______ than that of a heavy equipment manufacturer.
B. lower.
C. the same as.
A. higher.
B. lower.
C. the same as.
Correct Answer: A
This is because the book value of a service company is much smaller.
User Contributed Comments 4
| User | Comment |
|---|---|
| katybo | and the price? |
| danlan2 | Price of a service company is similar to that of a heavy equipment manufacturer. |
| Rchan89 | i think all else equal, a service company has less fixed assets they need to purchase than an auto manufacturer. |
| davidt876 | i dont think it makes sense to comment on the price or book value in isolation. you can justify that the ratio of P/B is higher in the service industry than in manufacturing, but you can't say that P or B are absolutely higher or lower in any industry. even if you found that average book value is higher in an industry, its most likely a function of consolidation or the long-term lifecycle of the industry |