Price to book ratio (P/B)

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    The price to book ratio (P/B) is the ratio of the company’s share price over the total book value of the company. The P/B is calculated by dividing the stock’s current closing price by the most recent quarter’s book value per share. The formula used is:

    Price to book ratio

    Similar to the P/E ratio and PEG, a lower P/B indicates the company stock could be undervalued. It may also be a warning sign of fundamental problems within the company, for example, it may indicate you are paying too much for what would be left should the company go bankrupt overnight.

    Like most other ratios used in trading, the typical P/B can vary among different industries.

    P/B is also sometimes called the price/equity ratio.