A financial analyst was interested in comparing the priceto- book ratio (P/B) of drug companies. The analyst collected P/B ratios for 71 drug companies (Industry Group SIC 3 code: 283) and stored them as part of the file BusinessValuation .
a. Visually evaluate the P/B ratios by constructing a bullet graph. For the purposes of comparison, consider a P/B ratio that is 2 or less as excellent, a P/B ratio that is between 2 and 5 as acceptable, and a P/B ratio that is above 5 as unacceptable.
b. Why would using gauges be a poor choice for this analysis?
c. Are the three groupings of P/B ratios helpful in analyzing the data? What constitutes an acceptable P/B ratio varies by industry and is partially based on subjective analysis. For the purposes of information presentation, would you redefine or subdivide the current acceptable category?