What is the Price To Book Ratio?

The Price to Book Ratio or PB is a way to determine if a company’s stock is undervalued. It is a fundamental study that can be very helpful.

It is the price of the stock verses the total true assets of the company. The actual formula is

PB = Stock Price/ (total assets-(liabilities + intangeble assets)

The price to book ratio gives you an idea of what you are investing into. This way you would know what would happen if the company went bankrupt, would you be able to regain your losses or not.

Price to earnings is said to be good if it is under 1.0. However this is not always the case there are a number of factors why a PB would be low. For instance a company’s assets can be overstated, or the industry group as a whole could have a low Price to book.

Price to book can be compared to other companies in the same industry group and to the past performance of that company in order to determine if the company is undervalued.

Something that you should consider, PB becomes much more valuable when they are used with companies that have a lot of assets. A bank would be a good example of a company with a lot of assets.