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Crunching the Numbers

In this section, you will begin by looking at the distribution of price-to-book ratios across companies in the United States and then consider differences in price-to-book ratios across sectors. Finally, you will generate a portfolio of stocks that have the lowest price-to-book ratios in the market, with the intention of taking a closer look at these stocks in the next section.

Distribution of Price-to-Book Ratios Across the Market

To get a sense of what constitutes a high, low or average price-to-book value ratio, we computed the ratio for every firm listed in the United States. Figure 4.4 summarizes the distribution of price-to-book ratios in October 2002.


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