Financial metric · Per share and valuation
Price-to-Book Ratio (P/B)
The market value of a company as a multiple of its accounting book value.
How to calculate it
P/B = share price ÷ book value per share = market capitalization ÷ common shareholders' equityPrice to tangible book (P/TBV) = share price ÷ tangible book value per shareP/B = P/E × ROEHow to read it
- Read P/B with ROE. A company that earns a high return on its equity deserves a higher P/B; a low P/B with a low ROE is not a bargain.
- P/B works best where assets are the main source of earnings and book values are fairly realistic: banks, insurers, and asset-heavy cyclical industries. U.S. bank investors mostly use price to tangible book.
Common pitfalls
- For asset-light companies (software, consumer brands, drug developers) most of the value is in brands, technology and people, which are not on the balance sheet. Their P/B is high and not very informative.
- Buybacks can push equity to near zero or below, producing absurd or negative P/B ratios.
- A P/B below 1 can be a real bargain, or a sign the market distrusts the book value, such as a bank with hidden loan losses or securities losses.
Where to find it in a 10-K
Calculate from market capitalization and total stockholders' equity on the balance sheet. Banks disclose tangible book value per share in their earnings releases.
U.S. vs. China reporting
Many Chinese banks and state-owned companies have traded well below book value for years, and P/B is a central metric in A-share and Hong Kong investing. In the U.S. P/B is mainly used for financials; for most of the S&P 500, intangible assets and buybacks make it a weak guide.