Price-to-book (P/B).
In plain English
Price-to-book compares a company's market value to its shareholders' equity. You divide the share price by book value per share, or market capitalization by total equity. A ratio above 1.0 means buyers pay more than accounting net worth, usually because they expect the assets to earn more than their carrying value. It works best where assets are financial and marked close to market, such as banks. It works poorly for software or services companies, whose main assets are people and code that never appear on the balance sheet.
01Why it matters
It tells you how much of a stock's price rests on assets you can point to in the filings and how much rests on expectations the accountants never recorded.
02The math, step by step
A share trades at $34. The company reports $10 billion of shareholders' equity and 500 million shares, so book value per share is $20. $34 divided by $20 is a price-to-book of 1.7.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Book value is a bookkeeping total built from historical cost and accounting rules, not an appraisal. Old real estate may be carried far below market, and goodwill may be carried far above it. A price-to-book under 1.0 is not proof of an asset bargain.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice