Price book ratio

This ratio compares a company’s market value to its book value (accounting value) per share. A high P/B ratio implies that the market value of a firm’s asset is higher than its accounting value. Since the market value of a company is influenced by market expectations, a high P/B ratio indicates that the market expects management to create more value from a given set of assets.

If the valuation is correct, this ratio represents how much the market is willing to pay for the recovery value of the company if it went bankrupt immediately. A lower P/E ratio could mean that the stock is undervalued. This ratio varies across industries, and thus it is only useful to compare the P/B ratios of companies in the same sector.

P / B = (Market value) / (book value)

P / B = (Stock price * no. of shares) / (total assets – intangible assets – liabilities)