Market to Book Ratio Analysis & Example

Definition: Market to Book Ratio (or price book ratio, P/B) is used to measure a company's market price in relation to its book value.

Formula:
Market to Book Ratio = Market Price Per Share / Book Value Per Share
Or,
Market/book ratio = Market price per stock / Net asset value per stock
Or,
P/B ratio = Market capitalization / Book value of equity

(Note: Book Value Per Share = Book Value for Common Shares / Number of Common Shares)

Example 1:
Kent Ltd is trading at $3.50 per stock, and the book value per stock is actually $5.00. Then the P/B ratio = 3.50 / 5 = 0.7

Example 2:
If the stock for Company ABC is selling at $60 a share and its book value per share is $50, then the market/book ratio = 60 / 50 = 1.2

Example 3:
If Corporation XYZ has $900,000 market capitalization while the book value is $600,000, then the market to book ratio = Market capitalization / BV = 900,000 / 600,000 = 1.5

* Next: Price Earnings Ratio (P/E) Examples

Author

Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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