price-to-book-value ratio

A price multiple that tells you if a stock is cheap or expensive relative to a share of equity in the company it represents. The price-to-book (P/B) ratio is calculated by dividing a stock’s current share price by the company’s book value per share. Book value is total assets less total liabilities. Book value is what the net assets are worth, the historical accounting value of a company’s residual equity. The allure of the price-to-book ratio comes from both its long-term track record of predicting future relative performance and what it ties valuation to. A price-to-book ratio of 1.0 suggests the current price is equal to the proportionate amount of equity in the company a shareholder can lay claim to by owning a share of the stock. For the ratio to be calculated, a company’s assets must exceed its liabilities.