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
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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