Price to Book Ratio Calculator
Calculate the Price to Book (P/B) ratio to assess stock valuation relative to the company's book value. The P/B ratio compares market value to accounting value, providing insight into how the market values the company's assets.
Stock Valuation Metrics
P/B Ratio Results
Price to Book Ratio:
0.00x
Book Value Premium:
Valuation Assessment:
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Investment Analysis
Asset Backing:
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ROE Context:
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Investment Style:
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Business Insights
Balance Sheet Strength:
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Market Perception:
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Value Investing Potential:
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Understanding Price to Book Ratio
The Price to Book (P/B) ratio compares a company's market value to its book value, providing insight into how the market values the company's net assets. It's particularly useful for value investors looking for companies trading below their asset backing.
P/B Ratio Formula
Basic Formula
- P/B Ratio = Stock Price / Book Value Per Share
- Book Value Per Share = (Total Assets - Total Liabilities) / Outstanding Shares
- Expressed as a multiple (e.g., 1.5x)
- Compares market value to accounting value
Book Value Calculation
- Total Assets - Total Liabilities = Shareholders' Equity
- Shareholders' Equity / Outstanding Shares = BVPS
- Represents liquidation value per share
- Historical accounting measure
P/B Ratio Interpretation
Valuation Guidelines
General P/B ratio valuation ranges
P/B < 1.0
- Trading below book value
- Potentially undervalued
- Value investing opportunity
- Requires careful analysis
P/B = 1.0
- Trading at book value
- Fair market valuation
- Balanced assessment needed
- Depends on company quality
P/B > 1.0
- Trading above book value
- Growth expectations priced in
- Intangible value recognition
- Quality company premium
P/B > 3.0
- Significant premium to book
- High growth expectations
- Technology and growth stocks
- Requires strong fundamentals
When to Use P/B Ratio
| Situation | Why P/B Works | Examples | Caution |
|---|---|---|---|
| Asset-Heavy Companies | Valuable tangible assets | Banks, real estate, manufacturing | Asset quality matters |
| Financial Distress | Liquidation value reference | Distressed companies | Going concern vs liquidation |
| Value Investing | Identifies undervaluation | Deep value stocks | Value traps possible |
P/B Ratio Limitations
Accounting Issues
- Book value can be outdated
- Intangible assets not included
- Historical cost vs market value
- Depreciation affects asset values
Industry Differences
- Asset-intensive industries
- Technology companies
- Service-based businesses
- Different capital structures
P/B Ratio vs Other Metrics
vs P/E Ratio
- P/B focuses on assets
- P/E focuses on earnings
- P/B better for asset valuation
- P/E better for profit valuation
vs Price to Sales
- P/B considers asset backing
- P/S focuses on revenue
- P/B better for balance sheet analysis
- P/S better for growth analysis
ROE and P/B Relationship
Growth-ROE Relationship
- P/B = ROE × P/E (simplified)
- Higher ROE justifies higher P/B
- Growth affects sustainable ROE
- Quality companies command premium
Value Investing Framework
- Low P/B + High ROE = Attractive
- Low P/B + Low ROE = Caution
- High P/B + High ROE = Justified
- High P/B + Low ROE = Expensive
Key Takeaways for P/B Ratio
- P/B Ratio = Stock Price / Book Value Per Share measures market value relative to accounting value
- A P/B ratio below 1.0 suggests the stock may be trading below its asset backing
- P/B ratio is most useful for asset-heavy industries like banking and real estate
- Book value represents historical accounting value, not current market value
- P/B ratio should be used alongside ROE to assess management efficiency
- Compare P/B ratios within the same industry for meaningful analysis
- Low P/B ratios may indicate value opportunities or fundamental problems
- P/B ratio works best when book value accurately reflects economic value