Price-to-Book Ratio Definition

The price-to-book ratio (PBR) takes favor by value investors for decades, and it widely uses by market analysts.

And traditionally, any value under 1.0 considers the good P/B value, indicating the potentially undervalued stock.

However, value investors often consider stocks with a P/B value under 3.0. It’s important to note that it is challenging to pinpoint the specific numeric value of the “good” P/B ratio.

When determining if the stock undervalues and, therefore, the right investment, ratio analysis can vary by industry, and the good P/B ratio for one industry the low rate for another.

What are the Basics of the Price-to-Book Ratio?

  • The Price-to-book-ratio compares the company’s market capitalization, and market value, to its book value.
  • And specifically, it compares the company’s stock price to its book value per share (BVPS).
  • And also,  the market capitalization company’s value its share price multiplied by the number of outstanding shares.
  • The book values total assets – total liabilities, and it originates in the company’s balance sheet.
  • Also, in other words, if the company liquidated all of its assets and paid off all its debt, the remaining value must in the company’s book value.
  • Also, it’s helpful to identify some general parameters and the range for the P/B value. Then, consider various other factors and valuation measures that extra accurately interpret the P/B ratio and forecast its growth potential.

How to Calculating the P B Ratio Example

  • Firstly, as stated earlier, the P/B ratio examines the company’s stock price to its BVPS. The rate calculates as follows:
  • Secondly, Price-to-book-Ratio = Market Price per Share ÷ Book Value per Share (BVPS)
    where:
  • Lastly, BVPS = (Total Shareholder Equity – Preferred Equity) ÷ Total Outstanding Shares