What is the 'PriceToBook Ratio  P/B Ratio'
The pricetobook ratio (P/B Ratio) is 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 "priceequity ratio".
Calculated as:
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
BREAKING DOWN 'PriceToBook Ratio  P/B Ratio'
The P/B ratio reflects the value that market participants attach to a company's equity relative to its book value of equity. A stock's market value is a forwardlooking metric that reflects a company's future cash flows. The book value of equity is an accounting measure that is based on the historic cost principle, and reflects past issuances of equity, augmented by any profits or losses, and reduced by dividends and share buybacks.
The Differences Between the Market and Book Value of Equity
Due to accounting conventions on treatment of certain costs, the market value of equity is typically higher than the book value of a company, producing a P/B ratio above 1. Under certain circumstances of financial distress, bankruptcy or expected plunges in earnings power, a company's P/B ratio can dive below 1. Because accounting principles do not recognize brand value and other intangible assets, unless they are derived through acquisitions, all costs associated with creating intangible assets are expensed immediately. For example, research and development (R&D) costs must be expensed, reducing a company's book value. However, these R&D outlays can create unique production processes for a company, or result in patents that can bring royalty revenues going forward. While accounting principles favor a conservative approach in capitalizing costs, market participants may raise the stock price as a result of such R&D efforts, resulting in wide differences between the market and book values of equity.
Advantages and Disadvantages to the P/B Ratio
Investors find the P/B ratio useful because the book value of equity provides a relatively stable and intuitive metric that can be easily compared to the market price. Also, the P/B ratio can be used for firms with positive book values and negative earnings since negative earnings render pricetoearnings ratios useless, and there are fewer companies with negative book values than companies with negative earnings. However, when accounting standards applied by firms vary, P/B ratios may not be comparable, especially for companies from different countries. Also, P/B ratios can be less useful for services and information technology companies with little tangible assets on their balance sheets. Finally, the book value can become negative as a result of a long series of negative earnings, making the P/B ratio useless for relative valuation purposes.

BookToMarket Ratio
A ratio used to find the value of a company by comparing the ... 
Price to Tangible Book Value  ...
A valuation ratio expressing the price of a security compared ... 
Book Value
1. The value at which an asset is carried on a balance sheet. ... 
Book Value Per Common Share
Book value per common share is a measure used by owners of common ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Ratio Analysis
A ratio analysis is a quantitative analysis of information contained ...

Investing
Evaluating Companies Using PriceToBook Ratio
The pricetobook ratio can help investors find undervalued companies. 
Trading
Understanding The P/B Ratio
A price to book ratio can tell an investor how the book value of a company measures up to its stock price. Find out how this ratio is calculated and how it can inform your investment decisions. 
Markets
Market Value Versus Book Value
Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment. 
Markets
Book Value: How Reliable Is It For Investors?
In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain. 
Investing
5 MustHave Metrics For Value Investors
These quickanddirty ratios will help you find the most undervalued stocks on the market. 
Markets
How to Invest Your Excess Cash in Undervalued Securities
Learn how even small investors can shoot for substantial capital gains by starting to invest their excess cash in undervalued securities. 
Investing
Book Value Per Share for Banks: Is It a Good Measure? (WFC, BAC)
Find out why bank stocks usually trade below book value per share, and understand how trading activities increase banks' risk exposures and affect valuation. 
Trading
Analyzing GE's Price & Profitability Ratios in 2016 (GE)
Learn about General Electric and its financial metrics that help investors analyze the company's relative valuation and profitability. 
Markets
WalMart's 5 Key Financial Ratios (WMT)
Identify the five key financial ratios that fundamental analysts use to evaluate WalMart's financial position and determine if its stock is a good buy. 
Markets
Analyzing AT&T's Price & Profitability Ratios in 2016 (T)
Conduct fundamental analysis on AT&T by examining its price and profitability ratios.

What is considered a good price to book ratio?
Discover what is considered to be a good pricetobook ratio value, and learn the factors to consider when interpreting this ... Read Answer >> 
What is the average pricetobook ratio for a bank?
Learn what the average price to book (P/B) ratio is in the banking industry and how the P/B evaluation is used when analyzing ... Read Answer >> 
What is the average pricetobook ratio of companies in the Internet sector?
Understand what the pricetobook (P/B) ratio is used to measure. Learn the average P/B ratio of companies in the Internet ... Read Answer >> 
What is the average pricetobook ratio in the oil & gas drilling sector?
Calculating the price to book ratio for oil and gas drilling companies can provide insight for investors interested in understanding ... Read Answer >> 
How do you use the pricetobook ratio to evaluate a company's value?
Understand how investors and market analysts use the pricetobook ratio to evaluate the worth of a company and why this ... Read Answer >> 
If a company has a low price to book ratio, does this mean its stock is undervalued?
Learn the usefulness of the pricetobook ratio, a primary equity valuation measure, and determine how it can best be used ... Read Answer >>