Valuation
Price to Book
Price to book compares the market price with the accounting value of shareholders' equity.
Book value is assets minus liabilities, the residual that belongs to owners on the balance sheet. P/B below 1 means the market prices the equity below that accounting residual. That can be a bargain in a bank or an insurer, or a warning that the assets are overstated or the earnings power is gone.
Asset-light businesses — software, brands, marketplaces — often trade at many times book because the valuable asset never hit the balance sheet. A high P/B there is normal, not automatic evidence of a bubble. Use P/B inside industries where tangible equity drives returns: banks, insurers, manufacturers, and some REITs.
Formula
P/B = Share price ÷ book value per share
Live example
Apple Inc. (AAPL) last printed at $345.65 with a market cap of $5.04T. Apply the formula on this page to that live price. Where the quote is missing an input, the stock page's financials are the next place to read it.
Related
Return on Equity (ROE) · P/E Ratio · Debt to Equity
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Questions
Is P/B under 1 a bargain?
Only if the book is real and the business can earn an acceptable return on that equity. Otherwise you are buying a melting ice cube at a discount.
How is tangible book different?
Tangible book strips out goodwill and other intangibles. It is the stricter version, used when acquisitions have inflated equity.