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:
P/B Ratio = Market Price per Share / Book Value per Share
where Book Value per Share =Â (Total Assets  Total Liabilities) / Number of shares outstanding
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.

Book Value
1. The value at which an asset is carried on a balance sheet. ... 
Ratio Analysis
A ratio analysis is a quantitative analysis of information contained ... 
Price to Tangible Book Value  ...
Price to tangible book value is a valuation ratio expressing ... 
Cash Asset Ratio
The cash asset ratio is the current value of marketable securities ... 
Key Ratio
A mathematical ratio that illustrates and summarizes the current ... 
Capitalization Ratios
Capitalization ratios are indicators that measure the proportion ...

Investing
Using The PriceToBook Ratio To Evaluate Companies
The PriceToBook (P/B) ratio can be an easy way to determine a company's value, but it isn't magic! 
Investing
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. 
Investing
Sysco and Other Big Movers In Services
The market has been slipping so far today. The Nasdaq has fallen 0.3%; the S&P 500 has fallen 0.4%; and the Dow has declined 0.5%. The Services sector (IYC) is currently lagging behind the overall ... 
Investing
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. 
Investing
SXC Health Solutions Corp. (USA) Among the Nasdaq's Biggest Movers
The market is having a bad day so far: the Nasdaq is trading down 0.3%; the S&P 500 has declined 0.4%; and the Dow has slipped 0.5%. The Nasdaq Composite Index is a capitalizationweighted index, ... 
Investing
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. 
Investing
Analyzing AT&T's Price & Profitability Ratios in 2016 (T)
Conduct fundamental analysis on AT&T by examining its price and profitability ratios. 
Insurance
How To Value An Insurance Company
In the insurance space, accurate predictions of metrics such as ROE are important, and paying a low P/B can help put the odds in investors' favor. 
Investing
Five Low PriceToBook Value Stocks
Stocks with low pricetobook values tend to be safer, on average, than the overall market. Here's a look at five that may have potential to become enviable investments.

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 >> 
What is the average pricetobook ratio of companies in the retail sector?
Find out more about the pricetobook (P/B) ratio, how to calculate the ratio and the average P/B ratio of companies in the ... Read Answer >> 
What metrics can be used to evaluate companies in the financial services sector?
Explore some of the various equity evaluation metrics that can best be used to assess companies included in the financial ... Read Answer >> 
What metrics can be used to evaluate companies in the banking sector?
Learn which metrics are most useful to evaluate companies in the banking sector and associated issues with such metrics when ... Read Answer >> 
If the intrinsic value of a stock is significantly lower than the market price, should ...
Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >> 
What metrics are most commonly used to evaluate companies in the insurance sector?
Learn about insurancespecific issues in valuation and which metrics are most commonly used to evaluate companies in the ... Read Answer >>