Series 79: Price-to-Book Ratio

Price-to-Book Ratio

The price-to-book (P/B) ratio of a stock can help indicate whether a company’s stock is over- or undervalued relative to the value of its assets. A company that trades at a P/B ratio of less than 1.0 theoretically has a liquidation value that exceeds its total market cap, and would therefore be significantly undervalued.

To calculate the P/B ratio, divide the market price of the stock by the company’s book value per share, usually as of end of the last quarter:

Alternatively, the ratio can be derived by dividing a company’s total market cap by its total book value.

While the P/B calculation seems simple, there are a couple of nuances. The first is that different types of book value can be used in the denominator. Sta