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

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