Price-to-Book RatioP/B
The price-to-book ratio is the share price divided by book value per share. It is most useful for asset-heavy businesses such as banks; for companies whose value lies in brands or software it says little.
The price-to-book ratio compares what the market pays for a share with the accounting value of the company's net assets behind it. It is a classic value-investing screen, most useful where assets on the balance sheet reflect what a business is really worth.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 4 min
- Also called
- Price/book ratio, Market-to-book ratio, P/B multiple
- Updated
Price-to-book in plain words
Book value is a company's accounting worth: total assets minus total liabilities.1
P/B divides the share price by book value per share.1 A P/B of 1 means the market values the shares at exactly their accounting net assets.
It is most useful for comparing similar companies, especially asset-heavy ones such as property firms and utilities.1
How to calculate and use P/B
Find shareholders' equity
Take total assets minus total liabilities from the balance sheet.1
Convert to per share
Divide shareholders' equity by shares outstanding to get book value per share.2
Divide price by book
Divide the share price by book value per share.1
Compare with peers
Compare with close peers, ideally in asset-heavy industries.1
Check intangibles
Discount the signal for brand or software businesses, where intangible assets are often excluded from the calculation.1
Ask why it is low
Ask why a stock trades below book — there is often a reason.1
Worked examples
Example 1 — Basic ratio
P/B of 1.2A hypothetical bank trades at $30 and has book value per share of $25.
| Share price | $30 |
| Book value per share | $25 |
| P/B | 1.2× |
Dividing price by book value per share gives 1.2, matching the definition of price per share divided by book value per share.1
Example 2 — Below book
Possible value trapA hypothetical lender trades at $8 with book value of $10 a share.
| P/B | 0.8× |
| Pending lawsuit | Yes |
It looks cheap, but a stock below book value may be there for good reasons.1
Example 3 — Software firm
Weak signalA hypothetical software company has little equity on its books and trades at 12× book.
| P/B | 12× |
| Main assets | Code and brand |
The high ratio says little, because intangible assets are often excluded from the calculation.1
P/B vs P/E
| Aspect | Price-to-book | Price-to-earnings |
|---|---|---|
| Compares price with | Net assets per share | Earnings per share |
| Works when profits are negative | Yes | No |
| Best suited to | Banks, insurers, property | Steady earners |
| Main blind spot | Intangible assets | One-off earnings swings |
Where P/B is used
Bank analysis
Compare lenders whose assets are mostly financial, alongside Fundamental Analysis.
Value screens
Pair with the Price-to-Earnings Ratio to find cheap stocks.
Downside thinking
Book value gives a rough floor if assets were sold.
Sector comparison
Compare Market Capitalisation with net assets across peers.
Advantages and disadvantages
Advantages
- Book value is usually positive even when earnings are not.
- Easy to calculate from the balance sheet.
- Meaningful for asset-heavy businesses.
- Book value is more stable than earnings.
Disadvantages
- Ignores intangible assets such as brands.
- Accounting rules shape book value and differ by country.
- Low ratios can be value traps.
- Buybacks and write-downs distort equity.
Going deeper
Read as far as you need. Each level builds on the one before it.
What book value is
Beginner
Why sector matters
Intermediate
Value traps
Advanced
A low P/E or P/B doesn't always mean real value.3 A falling share price can reflect losses the accounts have not yet recognised. Accounting standards for asset values differ by country, so cross-border comparisons need care.
Common mistakes
Calling every P/B below 1 cheap
Check why the market doubts the assets.
Using P/B for software firms
Intangibles are mostly missing from book value.
Comparing across sectors
Normal ranges differ widely between industries.
Ignoring accounting differences
Asset valuation rules differ by country.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- P/B is share price divided by book value per share.
- Book value is assets minus liabilities.
- It suits banks and other asset-heavy firms.
- It misses intangible assets.
- A low ratio needs an explanation before it is a bargain.
Frequently asked questions
Is a P/B below 1 always a buy signal?
Why is P/B popular for banks?
Can book value be negative?
Further learning
- Price-to-Earnings Ratio
The earnings-based counterpart.
- Fundamental Analysis
Where valuation ratios fit.
- Market Capitalisation
The market value side.
- Leverage
How debt affects book value.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- FINRA. Defining the Value of an Investment (opens in a new tab) Checked .
- Charles Schwab. Five Key Financial Ratios for Stock Analysis (opens in a new tab) Checked .
- FINRA. Value Investing (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.