The Relationship Between P/E and Book to Market Ratios
José Antonio Laínez Gadea
Beatriz Cuéllar Femández
In this paper we propose a joint analysis of two relevant ratios in fundamental analysis: PIE and book market. On the basis of the EBO accounting valuation model, our goal is to analyse the relationship between both ratios and assess the role of the accounting rate of return in explaining how both combine in value. Results indicate that their relation is positive but not monotonic. Also, the book rate-of-return equity seems to determine the articulation between PIE and book to mar/ret as long as this rate of return is a good estimator of future return on equity. Finally, we found evidence that the ratio book to mar allows to identify the cases in which PIE contains transitory components in its denominator and situations in which it is a good indicator for future growth.
PIE, book to market, return on equity, fundamental analysis.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.