Deleveraging Book-to-Market Ratio
factor.formula
The calculation formula of net operating assets is:
Net operating assets represent the value of assets used in the actual operations of a business, removing the impact of financial activities by adding back net debt (financial liabilities minus financial assets), and focusing more on measuring the assets of a business's core business.
Detailed calculation formula for net operating assets:
This is a detailed expansion of net operating assets, which shows the calculation details of financial assets and financial liabilities more clearly. It clearly points out that shareholders' equity includes equity attributable to the parent company and minority shareholders' equity, and emphasizes the offsetting relationship between financial assets and financial liabilities.
The formula for calculating the deleveraged book-to-market ratio is:
This formula shows how to calculate the deleveraged book-to-market ratio. The numerator is net operating assets and the denominator is the total market value of the company. This ratio reflects the market's valuation of the company's core assets after stripping out the impact of financial activities.
This factor evaluates the value of a company by calculating the ratio of net operating assets to market value. The calculation of net operating assets excludes the impact of financial assets and financial liabilities, aiming to more accurately reflect the asset value of the company's core business.
Refers to the operating assets of the enterprise minus the operating liabilities. Here, it is calculated by adding shareholders' equity to net liabilities.
The market value of a stock, which is equal to the stock price multiplied by the number of shares outstanding.
factor.explanation
The reciprocal of the traditional price-to-book ratio (PB), namely the book-to-market ratio, reflects the valuation level of a company to a certain extent. However, the traditional price-to-book ratio does not take into account the impact of corporate leverage, making the valuation results vulnerable to the impact of corporate financial activities. The deleveraged book-to-market ratio effectively strips away the impact of corporate financial activities by replacing traditional book value with operating net assets, and makes the valuation indicator more focused on reflecting the value of the company's core operating assets. This factor re-evaluates the company's equity and debt through market-based pricing, thereby providing a more accurate valuation perspective. This factor has been proven in practice to significantly improve the effectiveness of stock selection.