The price-to-book ratio (P/B) is a valuation metric that compares the market price of a company's stock to its book value per share. It can be written as P/B = price per share / book value per share, where book value per share equals shareholders' equity divided by shares outstanding. An alternative framing is market capitalization divided by total shareholders' equity.
Investors use P/B to gauge how the market values a company's net asset base relative to accounting value. A lower P/B ratio suggests the stock trades for less than its book value per share, while a higher ratio suggests a higher market valuation relative to assets. The meaning varies by industry; asset-heavy sectors such as banks and utilities often show lower P/B values, whereas firms with substantial intangible assets may exhibit higher or even negative book value. Compare P/B against peers and against the company’s own historical levels to spot relative changes over time.
Book value may understate the true value of a company with valuable intangible assets, such as brands or technology, or be affected by accounting choices and asset impairments. P/B does not reflect future earnings potential or cash flow generation, and it can be distorted by share buybacks, capitalization of development costs, or differences in accounting practices. For banks and financial firms, P/B is influenced by leverage and regulatory capital requirements, so comparisons should be made within the sector.
For example, if a stock trades at $30 per share and the book value per share is $15, the price-to-book ratio is 2.0.
Price-to-Earnings Ratio · Book Value · Book Value Per Share · Tangible Book Value · Price-to-Sales Ratio · Market Capitalization · Return on Equity