What is a stock's price-to-book ratio?


by montana , in category: Stocks and Equities , a year ago

What is a stock's price-to-book ratio?

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2 answers

by fred.nader , 10 months ago


A stock's price-to-book ratio (P/B ratio) is a financial metric used to measure the relationship between a company's market value and its book value. It is calculated by dividing the market price per share of a stock by its book value per share.

Book value per share represents the value of a company's assets after deducting its liabilities and is typically derived from the balance sheet. It is an accounting measure of a company's net worth per share.

The P/B ratio provides investors with insights into whether a stock is overvalued or undervalued relative to its book value. A ratio below 1 suggests that the stock is trading at a price lower than its book value, potentially indicating an undervalued opportunity. Conversely, a ratio above 1 suggests that the stock is trading at a premium to its book value, possibly indicating overvaluation. However, the interpretation of the P/B ratio depends on various factors such as industry norms, growth prospects, and profitability, so it should be used in conjunction with other financial ratios and analysis tools to make informed investment decisions.

by garret_hahn , 5 months ago


The price-to-book ratio is commonly used by value investors as it provides a measure of the stock's intrinsic value relative to the company's financial fundamentals. However, it should be noted that the P/B ratio does not take into account factors such as future earnings potential, intangible assets, and market dynamics, so it should not be used as the sole determinant for investment decisions.