Price-to-Book Ratio (P/B) Explained

The price-to-book ratio compares a company’s market value with its book value. It is especially useful for banks, insurers, financial companies, and asset-heavy businesses.

P/B ratio formula

P/B Ratio = Market price per share ÷ Book value per share

A P/B of 1.0 means the stock trades near its accounting book value. A P/B above 1.0 means the market values the company above book value.

How investors use P/B

• Low P/B may indicate a value opportunity, but it can also reflect poor returns or asset quality concerns.
• High P/B may be justified if a company generates strong returns on equity or has valuable intangible assets.
• P/B works best when paired with return on equity (ROE), asset quality, and profitability trends.

Limitations

P/B is less useful for software, platform, or intangible-heavy companies where book value may not capture the true economic value of the business.