Price-to-Book (P/B)
Stock price divided by book value per share. Compares market value of equity to its accounting book value — a classic Graham-style value metric, especially useful for asset-heavy businesses.
When to use: Use for financial firms, REITs, and asset-heavy industrials where book value approximates a real economic floor. Less informative for asset-light businesses (software, brands) where intangibles dominate intrinsic value.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| PB | P/B Ratio | Price-to-book multiple | integer |
| P | Stock Price | Current price per share | $ |
| BVPS | Book Value per Share | Equity ÷ shares outstanding | $ |
Real-Life Examples
Example 1: Bank at $40, $35 BVPS
A bank stock trades at $40 with $35 of book value per share.
Given
Step-by-Step
P/B of 1.14 — modestly above book. Banks below 1.0× book are signaling either credit concerns (bad loans likely to crystallize) or below-cost-of-capital ROEs. Banks well above 2.0× book typically have premium franchises or above-average ROEs.
Frequently Asked Questions
For asset-light or intangible-driven businesses. A software company with great customer relationships and no physical assets shows tiny book value, producing a P/B of 30× that signals nothing useful. P/B works when book value approximates replacement cost.
Via the formula P/B ≈ (ROE − g) / (r − g) for a Gordon-style firm. High ROE relative to required return justifies high P/B; ROE below cost of equity should produce P/B below 1. The link makes P/B a derivative of capital efficiency.
Yes. Tangible BVPS strips out goodwill and intangibles, giving a more conservative book floor. Tangible P/B is preferred for banks and acquired-growth companies where reported book includes large goodwill balances from past M&A.