P/B Ratio (Price-to-Book)
How much you pay vs. what the company owns
Definition
The Price-to-Book (P/B) ratio compares a company's market price per share to its book value per share. Book value is total assets minus total liabilities. A P/B ratio below 1 suggests the stock is trading for less than the company's net assets, potentially indicating undervaluation. High P/B ratios are common in asset-light technology companies. Banks and financials are commonly valued using P/B.
Formula / Rules
P/B Ratio = Market Price per Share ÷ Book Value per Share
Example
Bank of America trades at $35 per share with a book value per share of $31. The P/B ratio is 35 ÷ 31 = 1.13. This is near fair value for a bank. A P/B of 0.8 (stock below book value) might indicate the market expects write-downs; a P/B of 3.0+ typically implies strong expected returns on equity.
Related Terms
Frequently Asked Question
What is the P/B ratio?
The P/B ratio compares stock price to book value per share. Below 1 means the stock trades below net assets. It is especially useful for valuing banks and asset-heavy companies.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.