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Price-to-Book Ratio
Valuation
★★★★★
The ratio between share price and book value per share, showing the market premium or discount to accounting net assets.
Explanation
Price-to-book compares market value with book value. It is most useful for asset-heavy businesses such as banks, insurers, steel, and property companies. A PB below 1 may suggest undervaluation, but it can also reflect poor asset quality or weak profitability.
Formula
PB = share price / book value per share = market capitalization / net assets✓ When to Use
- • Valuing banks, insurers, and other asset-heavy companies
- • Identifying possible valuation floors in heavy-asset industries
- • Combining PB with ROE to judge valuation quality
✗ Not For
- • Light-asset technology or software companies
- • Companies with negative net assets
- • Companies whose book value is inflated by goodwill or weak receivables
⚠ Common Mistakes
- ▸ Assuming low PB always means cheap
- ▸ Ignoring asset quality
- ▸ Comparing PB directly across unrelated industries
ValuationAsset BasedFinancial StocksBelow Book