Price-to-Book Ratio

Price-to-book ratio means a company’s market value compared with its book value. In simple terms, it compares what investors pay for the company with the accounting value of its net assets. Price-to-book ratio is important because it is often used to evaluate banks, financial companies, and asset-heavy businesses. A low ratio may suggest a stock is cheap, but it can also signal weak profitability or high risk. For example, if a company’s market value is $20 billion and its book value is $10 billion, its price-to-book ratio is 2. Price-to-book ratio is not useful for every company. It may be less meaningful for technology or service companies with valuable intangible assets.