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Price book ratio

The price/book ratio simply represents the current market price of the company relative to the actual assets that the company owns. We find this p/b ratio through the following calculation: market price per share / book value per share. Here, the book value per share is (total assets – total liabilities) / number of shares outstanding. Investors like using the p/b ratio because it is a relatively stable and intuitive metric. However, this does change depending on which industry you’re looking at. Generally, a low p/b ratio is considered to be a good thing and could mean that the stock is undervalued. However, it could also be a major warning sign that something is fundamentally wrong with the company.

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