Price-to-Book (P/B) Ratio: Definition and How to Use It
Price-to-Book (P/B) compares a company's market value to its book value. Useful for asset-heavy businesses and relative valuation.
Formula
Book value typically equals total equity (assets minus liabilities). Adjust book value for intangible assets or revaluations when appropriate.
Notes
- Low P/B ratios can indicate undervaluation for asset-rich companies, but could also signal distress.
- P/B is less meaningful for asset-light or service businesses with significant intangible assets.
- Compare P/B across similar businesses and adjust for accounting differences.
Why it matters
P/B provides a market-based valuation that reflects how efficiently a company deploys its asset base. It's particularly useful for comparing capital-intensive industries like banking and utilities where tangible assets drive profitability.