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Price to book value ratio definition

Description

Price to book value ratio (P/B value ratio) shows the company’s shares value by comparing market value with its’ book value. Data to calculate this ratio is collected from balance sheet and stock market bulletin.

This ratio is important for those who own or wish to own stocks, because it shows the proportion between the stock’s price and the book value. This ratio can be calculated using a conservative method (price to book ratio), by deducting intangible assets from the company’s assets.

Norms and limitations

In general, there are no norms for this ratio.

A lower P/B value ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies industry by industry.

Formula

Share price shows the current market price of the share.

Equity per share equals equity (Shareholders’ equity) divided from share outstanding.