Investing term
What is P/B ratio (price-to-book)?
Market cap ÷ book value of equity. What you're paying for a dollar of accounting net worth.
The price-to-book ratio (P/B) compares a company's market value to its accounting net worth (book value): market cap divided by book value of equity, or price per share divided by book value per share. It tells you how many dollars you're paying for each dollar of the company's accounting net worth.
A low P/B can flag a bargain — a company trading below the stated value of its assets — or a troubled business the market has written off for good reason. It's most meaningful for asset-heavy businesses like banks, insurers, and property firms, where book value approximates real, saleable assets. For asset-light businesses — software, brands, services — P/B is far less useful, because their true worth lives in intangibles the balance sheet barely captures, so they routinely trade at very high P/B ratios that don't signal overvaluation. Like all single ratios, it's a screen, not a verdict.
The price-to-book ratio is market cap ÷ book value — what you pay per dollar of accounting net worth. Meaningful for asset-heavy firms like banks; misleading for asset-light software and brands.
For example
A bank trading at 0.8× book value costs less than its stated net worth — potentially a bargain, or a sign the market doubts those assets are really worth what the books say.
Learn it by doing
That's P/B ratio (price-to-book) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 15, Valuation for Investors).
Try the free lesson →Why it matters to you
The P/B ratio matters as a valuation gauge for asset-heavy businesses and as a classic value-investing screen, historically used to find stocks trading below the worth of their assets. But its usefulness is uneven: it's informative where book value is real (banks, industrials) and misleading where value is intangible (tech, brands). Knowing when P/B applies — and when a low ratio signals a bargain versus a broken business — is what makes it a tool rather than a trap.
⚠ Assuming a low P/B means cheap
A low price-to-book can signal a bargain — or a company whose assets aren't really worth their stated value, or a business in decline the market has rightly discounted. And for asset-light firms, book value understates worth, so P/B is uninformative. Treating any low P/B as automatically cheap ignores both the quality of the assets and whether book value is even meaningful for that business.