Morning star, a firm that evaluates and rates mutual fund performance, published an article on its website discussing a company€™s book value per share (shareholders€™ equity/number of shares outstanding) versus its market price per share. Morning star claims that the price-to-book ratio (market price per share/book value per share) is a measure of the difference between the value the stock market attaches to a firm and the value GAAP attaches to the firm. Business Week, in its Global 1000 Scoreboard, tracked the price-to-book ratio for the top companies in the world. Selected ratios are as follows.

REQUIRED:
Discuss why book value and market value are not the same. What factors would increase or decrease the price-to-book ratio? How could the nature of the business or the health of the economy affect the ratio?

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Price-to-Book Ratio Company Exxon Mobil BP Amoco Pfizer Reporting System Country U.S. U.S. GAAP 3.3 Britain U.S. GAAP 2.2 U.S. 9.9 U.S. GAAP Johnson & Johnson U.S. U.S. GAAP 6.7 IFRS Vodafone Britain 0.7 Novartis Switzerland IFRS 3.1 Japan 3.6 NTT DOCOMO U.S. GAAP