CFA Practice Question

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CFA Practice Question

The P/B multiple of a service company is usually ______ than that of a heavy equipment manufacturer.

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
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