Price-to-Book (P/B) Ratio

The price-to-book ratio compares a company market value with its book value, calculated as share price divided by book value per share. It shows how much investors are willing to pay for each dollar of net assets. A P/B near 1 means the market values the company close to its accounting net worth.

Use P/B mainly for asset-heavy businesses such as banks and industrials, where book value is meaningful. A low P/B may indicate a bargain or a struggling company, while a high P/B reflects expectations of strong returns on those assets. It is less useful for asset-light firms whose value lies in brands and intellectual property.

A stock trading at 30 dollars with a book value per share of 20 dollars has a P/B ratio of 1.5, meaning investors pay 1.50 dollars for every dollar of net assets on the balance sheet.