This is in simple layman terms. However, I believe it may be good to take note that certain ratios work better for certain companies due to the nature of the business. For example, PE and DCF works well with Japan Food but PB do not really help. Another example is Sysma is better view via PB rather than PE or DCF now due to the large amount of cash it has.
I guess another factor is still how a investor look at the company. Not one ratio or metric works for all companies.
As I analyse a company financial statement, I normally will make some some adjustments.
P/B - Not all book values are equal. Intangible assets should not be considered. Fixed assets, inventory, receivables, investment in subsidiaries/associated company etc may need to be discounted to a level lower than their appraised value. Sometimes it can be to increase, eg lands in balance sheet at acquired cost and has appreciated since.
This is in simple layman terms. However, I believe it may be good to take note that certain ratios work better for certain companies due to the nature of the business. For example, PE and DCF works well with Japan Food but PB do not really help. Another example is Sysma is better view via PB rather than PE or DCF now due to the large amount of cash it has.
I guess another factor is still how a investor look at the company. Not one ratio or metric works for all companies.
Reply to @lt0 : Then shouldn't you just buy more if fair value is not reached?
Very good reads for investors
https://www.tradingfloor.com/posts/the-pro...
https://www.fool.com/investing/value/how-t...
My take is pe and pb need to be taken togather with earnings growth.
A company with low pb or pe does not necesarily indicate “value”.
Eg a company with pb 2 with earnings growth 20% and a company pb 1 with earnings growth 10% with all else being equal, i rather buy the former.
As I analyse a company financial statement, I normally will make some some adjustments.
P/B - Not all book values are equal. Intangible assets should not be considered. Fixed assets, inventory, receivables, investment in subsidiaries/associated company etc may need to be discounted to a level lower than their appraised value. Sometimes it can be to increase, eg lands in balance sheet at acquired cost and has appreciated since.