The price-to-book ratio, or P/B ratio, is a stock's current share price divided by its book value per share. Book value per share is the shareholders' equity on the balance sheet divided by the number of shares outstanding. The ratio shows how many dollars investors pay for each dollar of accounting net assets. A P/B of 1 means the price equals book value, and a figure above or below 1 is a question to look into, not an answer.
Worked example
Company A reports shareholders' equity of $200 million and has 20 million shares outstanding. Book value per share = $200,000,000 ÷ 20,000,000 = $10.00. The shares trade at $15.00. P/B ratio = $15.00 ÷ $10.00 = 1.5. Investors pay $1.50 for each $1.00 of accounting net assets.
Why it matters
P/B is most useful where the balance sheet really is the business: banks, insurers and other asset-heavy firms hold assets that are close to what they would fetch. It misleads for software, brands and service firms, because their main assets (code, reputation, customer relationships) mostly do not appear on the balance sheet, so P/B looks high without meaning anything. Share buybacks can shrink equity and push P/B up, and negative equity makes the ratio meaningless. Read it next to book value per share and compare it only within the same industry.
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Frequently asked questions
There is no single good level. It depends on the industry, on how profitable the company is relative to its equity, and on how much of its value sits in assets the balance sheet does not show. A P/B well below or well above that of similar companies is simply a prompt to ask why.
Their most valuable assets, such as code, brand and customer relationships, are mostly expensed rather than recorded as assets, so book value is small and P/B looks high regardless of the real quality of the business. Earnings-based ratios usually say more there.
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Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.