Why Is Our Book to Market Ratio So High?
Aiga Company is a leading manufacturer of household plumbing materials. Aiga does notmake the high profile faucets and fixtures; instead, it makes the pipes and other connectionsthat are usually out of sight under kitchen and bathroom sinks. You are AigaCompany’s chief financial officer. You are scheduled to meet with an irate group of stockholders.
These stockholders read a recent business press article that explained that the average book to market ratio for the 10 most valuable companies in the United States is below 0.10. The article then claimed that companies with book to market ratios above 0.50 are probably run by mediocre managers who are unable to inspire market confidence in their companies. Aiga has a book to market ratio of 0.65. What will you say to the irate stockholders?