One of the interesting by-products of switching from
price-to-bookratiostovalue-to-bookratiosisthatweloseno
firmsinthesample.Inotherwords,thebookvalueofequity
can be negative but the book value of capital is always
positive.Theinvestedcapital,computedbynettingcashout
againstthebookvalueofcapital,isnegativeforfirmswhere
the cash balance exceeds the book value of capital.
Enterprise Value/Revenues
InChapter8,welookedatthedistributionofprice-to-sales
ratios.Figure9.3reportsonthemultipleofenterprisevalueto
revenuesinthemostrecentfinancialyearandrevenuesover
the prior four quarters (trailing revenues).
Notsurprisingly,enterprisevalue-to-salesratiostendtohave
highervaluesthanprice-to-salesratiosformostfirms,since
debtoutstanding exceeds cash at thesefirms. Some firms,
especiallyin thetechnology sector,haveconsiderablecash