Market Value to Book Value Ratio reflects the contribution of a firm to the wealth of society. When this ratio exceeds 1 it means that the firm has contributed to the creation of wealth in the society—if this ratio is 2, the firm has created a wealth of one pound for every pound invested in it. When this ratio is equal to 1, it implies that the firm has neither contributed to nor detracted from the wealth of society. It may be emphasized that if the market value to book value ratio is equal to 1, all the three ratios, namely, return on equity, earnings-price ratio (which is the inverse of the price-earnings ratio), and total yield are equal. Tesco’s analysis shows 19.61 for 2005, 16.48 for 2006, 14.75 for 2007, 12.99 for 2008 and 11.96 for 2009.
This shows Tesco was just a profit making company initially but over the years it has increased its efforts to benefit society and this is evident from their increased importance to corporate social responsibility in their strategy. Now the company is making profits but also contributing a lot to the society in fact company is contributing to the wealth of the society in a big way so it’s a good indication for long term investors.
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