Is the price-to book/return on equity ratio constant across sectors?

Coultas, Andrew

Is the price-to book/return on equity ratio constant across sectors?

Master Thesis

2011

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

This research paper investigates whether or not the Price-to-Book/ Return on Equity ratio is constant across the banking, retail, pharmaceutical and manufacturing sectors. The study makes use of statistical tests to determine if the ratio is constant. In addition, the research paper investigates the explicatory powers of the DuPont model, the Federal interest rate, and Consumer price inflation of the Price-to-Book/ Return on Equity ratio. This research documents evidence that the Price-to-Book/Return on Equity ratio is not constant across sectors and that the explicatory powers of the DuPont model differ from sector to sector. The implications of these findings are that investors cannot apply the same Price-to-Book/ Return on Equity ratio across sectors when evaluating stocks relative to each other.

Keywords

Financial Management

Reference:

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Masters

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