'Share repurchases and share issuances can distort historical P/B ratios"
Can someone explain how this happens with an example?
When the company engages in a share repurchase the equity book value decrease because cash goes out the company. If you issue new shares, the equity book value increase because cash enters the company. Hence, PB could be distorted.
Share repurchases decrease number of available shares available to the public and Share issuances increase the number of available shares available to the public.
This would change the denominator (B which is Book Value per share).
Numerator of B is the Book Value of the company - which decreases / increases as Harrogath has pointed out. the denominator of B calculation also gets changed … due to what I have stated here …
So there is a distortion of the ratio. (mainly due to components of the B (*denominator) changing.
May be a distortion.