P/B Ratio
Fundamental Analysis
What it means
Price-to-Book Ratio: a number that compares a company's market value to its book value (total assets minus total liabilities). It helps investors find companies trading below their net asset value.
Example
A company with a market cap of $10 billion and book value of $8 billion has a P/B ratio of 1.25. A P/B ratio below 1 means the market values the company less than its net assets, which may indicate undervaluation or underlying problems.
Mistake beginners make
Beginners use P/B ratio as the only valuation metric for modern companies. For asset-light businesses like tech or service firms, book value is often small and irrelevant — P/B is most useful for asset-heavy industries like banks, insurance, and manufacturing.
Related terms
- P/E Ratio — Price-to-Earnings Ratio: a number that shows how much investors are willing to pay per dol…