Price-to-book (P/B) Ratio

Price-to-Book (P/B) Ratio: The Price-to-Book (P/B) Ratio is a financial metric that compares a company’s market value to its Book Value. The P/B ratio is calculated by dividing the Stock’s current market price by its Book Value per Share. A P/B ratio less than 1 may indicate that the Stock is undervalued, while a ratio greater than 1 could suggest that it is overvalued.

Formula:

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

Example:

If a company has a current market price of $50 per Share and a Book Value of $30 per Share, the P/B ratio would be:

P/B Ratio = $50 / $30 = 1.67

Cases:

• Case 1: A technology company with a P/B ratio of 3.5 might indicate high investor expectations for future growth.
• Case 2: A manufacturing company with a P/B ratio of 0.8 could suggest that the market perceives it as undervalued compared to its Assets.