# Price-to-Book (P/B) Ratio

## What is the price-to-book (P/B) ratio?

Companies use the price-to-book ratio (P/B ratio) to compare a company’s market capitalization to its book value. It is calculated by dividing the company’s stock price by its book value per share (BVPS). An advantage book value is equal to its book value on the balance sheet, and companies calculate it by offsetting the asset by its accumulated depreciation.

### Key points to remember

• The P/E ratio measures a company’s market valuation relative to its book value.
• The market value of equity is usually greater than the book value of a company.
• The P/E ratio is used by value investors to identify potential investments.
• P/E ratios below 1 are generally considered solid investments.

## Formula and calculation of the Price-to-Book (P/B) ratio

In this equation, the book value per share is calculated as follows: (total assets – total liabilities) / number of shares outstanding). The market value per share is obtained by simply looking at the price of the stock in the market.