Price-to-Book Ratio (P/B)

The Price-to-Book Ratio (P/B) compares a company's market capitalization to its book value (total assets minus total liabilities). It helps investors assess whether a stock is trading above or below its accounting value.

Formula: P/B Ratio = Market Price per Share / Book Value per Share

• Or: Market Cap / Total Shareholders' Equity

Interpreting P/B:

P/B Ratio	Interpretation
< 1.0	Stock may be undervalued (or troubled)
1.0	Trading at book value
1.0 - 3.0	Typical range for most stocks
> 3.0	Premium valuation (high growth expected)

Example:

• Stock Price: $50
• Book Value per Share: $25
• P/B Ratio: 50 / 25 = 2.0

When P/B Works Best:

• Financial companies: Banks, insurers (assets are marked to market)
• Asset-heavy industries: Real estate, manufacturing
• Cyclical businesses: During downturns
• Value investing screens: Finding potentially cheap stocks

Limitations:

• Doesn't capture intangible assets well
• Less useful for tech/service companies
• Book value can be manipulated
• Historical cost vs. current value issues
• Negative book value makes ratio meaningless

Industry Comparison:

Industry	Typical P/B
Banks	1.0 - 1.5
Utilities	1.5 - 2.0
Technology	3.0 - 10.0+
REITs	1.0 - 2.0

Best Practice: Compare P/B to industry peers and historical averages, not in isolation.