can p/b be negative

Yes it can.
It would mean that equity is negative, which is certainly possible if the company has had net losses for several years. It’s not likely, but it’s possible.
Note that such a company would not last long unless they turned things around lickety-split.
 
Technically, it’s possible for a company to have negative PB; however, negative PB (even PE) is not a meaningful tool for comparison. Let me eloborate as to why that is the case.
If share price is 100 and BVPS is -100 then PB will be -1. Another company’s share price is also 100 but its BVPS is -0.1 (significantly better than the company with -100 BVPS) then that company’s PB will be -1,000. On the surface, the -1,000 PB company will appear worse; however, case facts suggest that it’s comparatively in a much better financial situation than the first company.
Bottom-line: Both negative PE and PB are generally considered NOT meaningful and therefore, should be completely ignored for analytical purposes.
 
There are lots of companies with shareholders’ deficits that last for years without going out of business
 
Negative P/B. Cummulated losses above the amount of stockholder equity (including all retained earnings of prevvios period). Recapitalization required. Such company can also be liquid in fact it is insolvent (if is entity of wider holding company) if most of liabilities are related to parent or sister company which will not put this entity into bankruptcy.
 
It will never happen to a financial company in a well regulated market. In Peru, for example, a year ago a financial institution was intervened by regulator before book value of equity was negative. The intervention objective was to protect clients deposits including interest, and total success achieved. Shareholders were obliged to sell their shares to another financial institution (a big bank by the way).
I know a negative PB ratio can happen, but most likely in private or not regulated companies.
 
Hard Dollars wrote:
Technically, it’s possible for a company to have negative PB; however, negative PB (even PE) is not a meaningful tool for comparison. Let me eloborate as to why that is the case.
If share price is 100 and BVPS is -100 then PB will be -1. Another company’s share price is also 100 but its BVPS is -0.1 (significantly better than the company with -100 BVPS) then that company’s PB will be -1,000. On the surface, the -1,000 PB company will appear worse; however, case facts suggest that it’s comparatively in a much better financial situation than the first company.
Bottom-line: Both negative PE and PB are generally considered NOT meaningful and therefore, should be completely ignored for analytical purposes.
Click to expand...
This answer best sums up the reasoning behind the usage of E/P over P/E when it comes to ranking in the case of negative earnings.
 
You must log in or register to reply here.
Back
Top