Mountain Top Markets has total assets of $48,700, net working capital of $1,100, and retained earnings of $21,200. The firm has 12,500 shares of stock outstanding with a par value of $1 per share and a market value of $7.10 per share. The stock was originally issued to the firm's founders at par value. What is the market-to-book ratio

Answer: 2.63

Explanation:

The Market to Book ratio is also referred to as the price to book ratio. It is a financial evaluation of the market value of a company relative to its book value. It should be noted that the market value is current stock price of every outstanding shares that the company has while the book value is the amount that the company will have left after its assets have been liquidated and all liabilities have been repaid.

The market-to-book ratio will be the market price per share divided by the book value. It should be noted that the book value per share is the net worth of the business divided by the number of outstanding shares. The book value will be:

= [ (12500 * 1) + $21200]/12500

= ($12500 + $21200) / $12500

= $33700/12500

=$2.70

The market-to-book ratio will now be:

= $7.10/$2.70

=2.63