Price-to-Book Ratio (P/B)
The P/B ratio tells you how much investors are paying for each dollar of net assets.
Formula
P/B = Stock Price ÷ Book Value Per Share
Book Value Per Share = (Total Assets − Total Liabilities) ÷ Shares Outstanding
Interpretation
- Below 1.0: Stock trades below its net asset value—may indicate undervaluation or distress
- 1.0–3.0: Typical for established companies
- Above 5.0: Market expects high future growth or intangible value
Best suited for
- Banks and financials: Assets are mostly liquid and marked to market
- Asset-heavy industries: Manufacturing, real estate, utilities
- Less useful for: Tech companies whose value is primarily intangible
Caveats
- Book value is historical cost and may not reflect true asset value
- Goodwill from acquisitions can inflate book value
- Intangible assets like brands and patents may not appear on the balance sheet
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Valuation
Difficulty
Beginner
Reading Time
1 min
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Where You'll See This
This concept appears throughout stock detail pages and financial data.