What is P/B Ratio?
The Price-to-Book (P/B) ratio compares a company's market capitalisation to its book value (net assets). A P/B below 1 means the market values the company below its net assets on paper, which is potentially a value signal but more often a warning of deteriorating returns. P/B is most useful for asset-heavy businesses like banks, insurers, and industrials, where book value is a meaningful proxy for intrinsic worth. For asset-light businesses (software, services), book value understates value and P/B becomes less relevant. Book value per share is shareholders' equity divided by diluted shares outstanding.
Formula
P/B Ratio = Market Price per Share / Book Value per Share
Book Value per Share = (Total Assets − Total Liabilities) / Shares Outstanding
Calculator
How to Use
- 1Find book value per share: From the balance sheet: Total Assets − Total Liabilities = Shareholders' Equity. Divide by diluted shares.
- 2Get current price: Use the latest market price.
- 3Divide: Price ÷ Book Value per Share gives P/B.
- 4Interpret: P/B < 1 may indicate undervaluation; P/B > 3 is common for high-ROIC businesses. Context matters.
Worked Example
Example: Bank stock
Price
$45
Book Value/Share
$38
P/B = 45 / 38 = 1.18×. The bank trades at a modest premium to book value, typical for a profitable commercial bank earning above its cost of equity. A P/B below 1 for the same bank would imply the market doubts its ability to earn its cost of capital.
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Figures from the most recent annual filing (10-K / 20-F), sourced directly from SEC EDGAR.