Price-to-Book Ratio

Price-to-Book

A ratio of the share price of a publicly-traded company to its book value per share, which is the company's total asset value less the value of its liabilities. The P/B is a ratio of investor sentiment on the value of a stock to it actual value according to the Generally Accepted Accounting Principles. A high P/B means either that investors have overvalued the company, or that its accountants have undervalued it.

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Price-to-book ratio. Some financial analysts use price-to-book ratios to identify stocks they consider to be overvalued or undervalued.

You figure this ratio by dividing a stock's market price per share by its book value per share.

Other analysts argue that book value reveals very little about a company's financial situation or its prospects for future performance.

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Price-to-Book Ratio (P/B Ratio)

What Does Price-to-Book Ratio (P/B Ratio) mean?

A ratio used to compare a stock's market value with its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Also known as the priceequity ratio. It is calculated as shown here:

Investopedia explains Price-to-Book Ratio (P/B Ratio)

A lower P/B ratio could mean that the stock is undervalued. However, it also could mean that something is fundamentally wrong with the company. As with most ratios, one must be aware that this varies by industry. This ratio also can provide some idea of whether one is paying too much for what would be left if the company went bankrupt immediately.

Related Terms:
• Book Value
• Gearing Ratio
• Market Value
• Price-Earnings Ratio—P/E Ratio
• Value Investing