Price to Economic Book Value (PEBV)
For the best financial analysis ratios, look no further. Harvard Business School and MIT Sloan empirically demonstrate the superiority of the data that drives our models and calculations. This paper compares our financial analysis to Bloomberg and Capital IQ (see appendix for details).
The price-to-economic book value (PEBV) ratio measures the difference between the market's expectations for future profits and the no-growth value of the stock. Economic book value (EBV) is our measure of the no-growth value of a stock.
Price per share/Economic book value per share = PEBV
When stock prices are much higher than EBVs, the market predicts the economic profitability (distinct from accounting profitability) of the company will meaningfully increase – resulting in a high PEBV. When stock prices are much lower than EBVs, the market predicts the economic profitability of the company will meaningfully decrease – resulting in a low PEBV. If the stock price equals the EBV, the market predicts the company's economic earnings will stay the same into perpetuity – resulting in a 1.0 PEBV.
(NOPAT / WACC)
- Adjusted total debt (including off-balance sheet debt)
+ Excess cash
+ Unconsolidated Subsidiary Assets
+ Net Assets from Discontinued operations
- Value of Outstanding Employee stock option liabilities
- Under (Over) funded Pensions
- Preferred stock
- Minority interests
+ Net deferred compensation assets
+ Net deferred tax assets
= Economic Book Value (EBV)
EBV per share = EBV / by shares outstanding
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