Price-to-Book (P/B) Ratio

Valuation based on assets.

The Price-to-Book (P/B) Ratio compares a company's market value to its book value (total assets minus liabilities). It essentially answers the question: "If this company closed today and sold everything, would I get my money back?"

How to Calculate?

P/B Ratio = Market Price per Share / Book Value per Share

When to Use It?

The P/B ratio is most effective for valuing businesses with significant tangible assets, such as:

• Banks & Financial Institutions
• Real Estate Companies (REITs)
• Manufacturing & Industrial Firms

Interpreting the Numbers

• P/B < 1.0: The stock is trading for less than the value of its assets. This could mean it's a massive bargain or a sign of serious financial trouble (a "Value Trap").
• P/B > 3.0: Common in tech companies where value comes from intellectual property, not physical assets.