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Price-to-Book (P/B)

beginner6 min read

Comparing price to net worth — handy for banks and asset-heavy businesses.

P/B = Share price ÷ Book value per share
Book value = shareholders’ equity (net worth). P/B compares price to that net worth.

P/BShare price relative to book value per share. compares the market price to the company’s accounting net worthOwnership value — what’s left after debts are subtracted from assets. (equityA unit of ownership in a company.). A P/BShare price relative to book value per share. of 1 means you’re paying exactly book valueA company’s net worth on its balance sheet.; above 1 means the market values the business above its on-paper net worthOwnership value — what’s left after debts are subtracted from assets. (usually for its earning power or brand).

P/BShare price relative to book value per share. shines for banks, NBFCs and asset-heavy businesses, where the balance sheetA snapshot of what a company owns and owes. IS the business and book valueA company’s net worth on its balance sheet. is meaningful. It’s far less useful for asset-light firms (software, brands), whose real value — people, IP, brand — barely appears on the balance sheetA snapshot of what a company owns and owes., so they trade at high P/BShare price relative to book value per share. legitimately.
Key takeawayP/BShare price relative to book value per share. compares price to net worthOwnership value — what’s left after debts are subtracted from assets.; it’s most meaningful for banks/asset-heavy firms and least meaningful for asset-light businesses.
FAQs
Why do banks get valued on P/B?

A bank’s assets and equity (its book) directly drive its earning capacity, and its book value is relatively “real” and current. So P/B (often alongside ROE) is the natural lens for banks — a high-ROE bank justifies a higher P/B.