2. Value Creation – Ratio Analysis There are four key ratios that are detrimental in evaluating the market value of a company’s stock: Equity to Book Value Ratio, Price-Sales Ratio, Price-Earnings Ratio, and Earnings Per Share. The first ratio mentioned, Equity to Book Value Ratio, measures the market value of a company’s stock. It is determined through dividing the current price of the stock by the book value per share. Price-Sales Ratio compares the company’s stock to their total revenue or sales. It is important since in certain cases, companies can have negative earnings, making it more important for some investors rather than PE Ratio. It is calculated through dividing the stock price by revenue. Price-Earnings Ratio key purpose is to
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The final ratio, Earnings Per Share measures the amount of company profit that is allocated to each share of stock and is useful in determining a company’s profitability.
For the first ratio mentioned above, Equity to Book Value, TD Bank resulted in 1.98, Chase Bank resulted in a 1.65 and Bank of America resulted in a 1.29. As you can see, the results were pretty much equal across the board, with TD Bank having the slight edge of the other two banks. In other words, the market value of the three stocks are very similar, with TD Bank having a slightly higher value. Moving on to the second key measurement, Price-Sales Ratio, TD Bank resulted in 11.91, Chase Bank resulted in a 15.10 and Bank of America resulted in a 16.89. Similar to the Equity to Book Value, the Price-Sales Ratios were also close among the three banks. The only difference being with TD Bank, as their ratio spread from Chase Bank, the next closest result, was 3.2. These results indicate that …show more content…
Of the three Banks, it looks like Chase Bank is the closest to maximizing its shareholder value, while Bank of America and TD Bank follow closely behind. From an industry perspective, the average for Price Earnings and Price Sales is for the FYE 2016 was 15. From the results, 2 of the three banks (Chase and Bank of America) were above the average while TD Bank was below average. For Price/Book Value, the industry average was 1.16, while all three banks were above that amount. Finally, for EPS, the industry average for 2016 was 7.45, and while all three banks were below this amount Bank of America was well below this average at 1.72. However, despite the low EPS, all three banks performed well above the industry averages meaning that they are considered more profitable and attractive by investors. To combat the extremely low EPS, Bank of America could benefit from a reverse stock split, reducing the number of shares outstanding, as that would increase earnings per share while also increasing the par value of the shares. Looking at company progressions, TB Bank has slightly improved in each ratio from 2012-2015. Chase Bank has also improved in each ratio. Bank of America has had a less stable condition with their ratios, during 2014 and 2012, their P/E Ratios were nearly 50 but then dropped the following years to a more normal amount of close to
The final ratio, Earnings Per Share measures the amount of company profit that is allocated to each share of stock and is useful in determining a company’s profitability.
For the first ratio mentioned above, Equity to Book Value, TD Bank resulted in 1.98, Chase Bank resulted in a 1.65 and Bank of America resulted in a 1.29. As you can see, the results were pretty much equal across the board, with TD Bank having the slight edge of the other two banks. In other words, the market value of the three stocks are very similar, with TD Bank having a slightly higher value. Moving on to the second key measurement, Price-Sales Ratio, TD Bank resulted in 11.91, Chase Bank resulted in a 15.10 and Bank of America resulted in a 16.89. Similar to the Equity to Book Value, the Price-Sales Ratios were also close among the three banks. The only difference being with TD Bank, as their ratio spread from Chase Bank, the next closest result, was 3.2. These results indicate that …show more content…
Of the three Banks, it looks like Chase Bank is the closest to maximizing its shareholder value, while Bank of America and TD Bank follow closely behind. From an industry perspective, the average for Price Earnings and Price Sales is for the FYE 2016 was 15. From the results, 2 of the three banks (Chase and Bank of America) were above the average while TD Bank was below average. For Price/Book Value, the industry average was 1.16, while all three banks were above that amount. Finally, for EPS, the industry average for 2016 was 7.45, and while all three banks were below this amount Bank of America was well below this average at 1.72. However, despite the low EPS, all three banks performed well above the industry averages meaning that they are considered more profitable and attractive by investors. To combat the extremely low EPS, Bank of America could benefit from a reverse stock split, reducing the number of shares outstanding, as that would increase earnings per share while also increasing the par value of the shares. Looking at company progressions, TB Bank has slightly improved in each ratio from 2012-2015. Chase Bank has also improved in each ratio. Bank of America has had a less stable condition with their ratios, during 2014 and 2012, their P/E Ratios were nearly 50 but then dropped the following years to a more normal amount of close to