Price-To-Book Ratio - P/B Ratio

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DEFINITION of 'Price-To-Book Ratio - P/B Ratio'

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.

Also known as the "price-equity ratio".

Calculated as:


Price-To-Book Ratio (P/B Ratio)

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BREAKING DOWN 'Price-To-Book Ratio - P/B Ratio'

A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies by industry.

This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately.

For more, check out Digging Into Book Value

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