Ask Colin

It is said that a price to book ratio of less than 1 may indicate a takeover target. True?

Yes, it could be one such indicator. If you are paying less than $1 for $1 of assets the company may be cheap. Remember though that the book value is the going concern value and if you thought just to break the company up and sell the assets, the value of the assets may be far less.

The other issue is that it is far too simple to use only one ratio for such an indication. You should consider all the other ratios and do a full fundamental analysis assessment of the company and its industry to understand whether a company may be a takeover target.

Keyword: