Financial Term Explorer
P/B Ratio (Price-to-Book)
A stock's price compared to its accounting book value. Useful for evaluating asset-heavy dividend stocks like banks and REITs.
đź“ť Definition
**P/B Ratio** is a stock's market price divided by its book value per share. The formula is `P/B = Stock Price / Book Value per Share`. A P/B below 1.0 means the stock trades for less than its net asset value on paper.
In Simple Terms
If a company has $100 million in assets minus $60 million in debt, book value is $40 million. With 10 million shares, book value per share is $4. If the stock trades at $3, P/B is 0.75—you're buying $4 of assets for $3. Sounds great, but ask why it's so cheap.
Example
Bank of America at P/B 0.9 seems like a bargain. But banks face interest rate risks and loan defaults. A low P/B might reflect real concerns about asset quality.
đź’ˇ Practical Tips
- 1Most useful for asset-heavy sectors: banks, insurance, REITs.
- 2Less useful for tech/service companies with few physical assets.
- 3A P/B below 1 isn't always a bargain—investigate first.
⚠️ Common Mistakes
Applying P/B analysis to tech companies where intellectual property and brand value aren't captured in book value.
âť“ Frequently Asked Questions
Is P/B below 1.0 always a buy?â–Ľ
No. It could mean the market doubts asset quality or expects write-downs.
What's a healthy P/B for banks?â–Ľ
1.0-1.5 is typical for well-run banks. Below 0.8 often signals problems.