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P/B Ratio

In short

Price-to-Book — compares stock price to the company's net asset value

If a company owns $10 of net assets per share and the stock costs $15, the P/B is 1.5. Below 1 can mean you're paying less than the accounting value of what the company owns — though it can also mean the market expects those assets to lose value or earn poor returns.

P/B compares market capitalization to book value — total assets minus total liabilities, or shareholders' equity. Because book value reflects historical-cost accounting rather than current market prices, and largely excludes internally generated intangibles like brand value or patents, P/B works best for asset-heavy, balance-sheet-driven businesses such as banks and insurers, where book value roughly tracks real economic worth. It's far less meaningful for technology or service companies whose value sits mostly in intangibles the balance sheet doesn't capture. A P/B below 1 isn't automatically a bargain — it can also reflect assets the market expects to be written down. P/B is often read alongside ROE, since a company earning a high return on equity typically sustains a P/B well above 1.

Formula

P/B = Stock Price ÷ Book Value Per Share

Thresholds

<1
Trading below book value — potential deep value
1-3
Fair value
3-5
Premium — strong brand or growth
>5
Expensive — justified only by high ROE

Related concepts

  • P/E Ratio — Imagine buying a lemonade stand that makes $100/year. If it costs $2,000, the P/E is 20 — you need 20 years of earnings to pay it off. Lower means cheaper.
  • Return on Equity (ROE) — If you invest $100 in a business and it earns $20 profit, ROE is 20%. Higher means the company is better at making money with your investment.
  • Net Margin — Net margin is what's left after EVERY expense — cost of goods, rent, salaries, interest on debt, and taxes. If a company brings in $100 of revenue and keeps $12 after all of that, its net margin is 12%. It's the strictest profitability measure, sitting below gross and operating margin since it also absorbs financing costs and one-time items.