Price-to-book ratio
Also called: P/B, P/B ratio, price to book, price-to-book
The share price divided by book value per share, or market capitalisation divided by shareholders' equity.
P/B equals ROE times P/E, so companies earning high returns on equity usually trade at higher P/B ratios. It is a key measure for banks and lenders but says little about asset-light businesses, whose brands and know-how are not on the balance sheet. A share below book value can be a value trap.
Learn more in these lessons
- The P/B ratioWhat does the price-to-book ratio tell you, and when should you use it?
- Analysing banks and lendersHow do you analyse a bank or a lending company?
- Case study: a lender in crisis (Yes Bank, 2018-2020)What can investors learn from the Yes Bank crisis?
- Choosing a valuation methodWhich valuation method suits which kind of company?
Related terms
Spotted a mistake or something unclear? Report it by email. Here is how corrections work.