How to Calculate Price to Book Ratio

Price to Book (P/B) Ratio is a financial ratio used to compare a stock's market value with the book value. It is also known as the market-to-book ratio or the price-to-equity ratio. A higher ratio indicates that the company has better future prospects. P/B can be calculated as follows:

Formula:
P/B ratio = Market capitalization / Book value of equity
OR = Price per share / Book value per share.
Note: Book value represents the portion of the company held by the shareholders, as measured by the company's total tangible assets less its total liabilities.

Example 1:
PDA Company is trading at $12 per share, with a book value per share of $10. The company is said to have a price to book of: 12 / 10 = 1.2

Example 2:
A company has a market capitalization of $500,000 and total book value of $400,000 (including $50,000 of goodwill and intangible assets). Then, the price to tangible book value is: 500,000 / (400,000 - 50,000) = 1.43

* Next: How to Calculate Book-to-Market Ratio
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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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