Valuation
Price-to-book
Also called P/B
Market value divided by the accounting value of the company’s net assets.
How it works
Book value is what the balance sheet says shareholders own after subtracting liabilities. P/B compares the market’s view to the accountants’.
It works best where assets are tangible and marked near their true worth — banks, insurers, property. That is why it remains a core metric in financials and a poor one elsewhere.
Where it misleads people
Book value ignores intangibles that were never purchased. A software company that built its own product has almost no book value and enormous economic value, which makes its P/B meaningless rather than expensive.
Formula
P/B = market capitalisation ÷ shareholders’ equityRelated terms
- Book valueWhat the balance sheet says shareholders own: total assets minus total liabilities.
- Tangible book valueBook value with goodwill and other intangibles removed.
- Intangible assetsNon-physical assets with value: patents, trademarks, software, licences and customer relationships.
- Value investingBuying assets for less than an estimate of their intrinsic worth, with a margin of safety.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.