Price to Book Ratio Calculator
Calculate P/B ratio from market cap and book value to assess stock valuation. Enter values for instant results with step-by-step formulas.
Reviewed by Daniel Agrici, Founder & Lead Developer
Formula
P/B Ratio = Market Price per Share / Book Value per Share
Book Value per Share = (Total Assets - Total Liabilities) / Shares Outstanding. Tangible Book Value per Share further subtracts intangible assets. A P/B below 1.0 means the stock trades below its net asset value. The relationship between P/B and ROE is the key to understanding whether a P/B level is justified.
Worked Examples
Example 1: Bank Stock P/B Ratio Valuation Analysis
Problem:A regional bank has total assets of $80 billion, total liabilities of $72 billion, intangible assets of $1 billion, 400 million shares outstanding, and stock price of $32. Net income is $1.2 billion. Evaluate the valuation.
Solution:Book Value = $80B - $72B = $8 billion\nTangible Book Value = $8B - $1B = $7 billion\nBVPS = $8B / 400M = $20.00 per share\nTangible BVPS = $7B / 400M = $17.50 per share\nP/B Ratio = $32 / $20 = 1.60x\nP/TB Ratio = $32 / $17.50 = 1.83x\nROE = $1.2B / $8B = 15.0%\nMarket Cap = $32 x 400M = $12.8 billion\nPremium to Book = ($32 - $20) / $20 = 60%
Result:P/B: 1.60x | P/TB: 1.83x | ROE: 15.0% | 60% premium to book | Justified by strong ROE
Example 2: Technology Company P/B vs Traditional Manufacturer
Problem:Compare: Tech Co with $50 price, $5 BVPS, 25% ROE versus Mfg Co with $30 price, $28 BVPS, 8% ROE. Which offers better value?
Solution:Tech Co P/B = $50 / $5 = 10.0x | ROE = 25%\nMfg Co P/B = $30 / $28 = 1.07x | ROE = 8%\nTech Co ROE-adjusted: P/B per unit of ROE = 10.0 / 25 = 0.40\nMfg Co ROE-adjusted: P/B per unit of ROE = 1.07 / 8 = 0.13\nTech Co premium to book: 900% | Mfg Co premium: 7%\nTech EPS = $5 x 25% = $1.25 | P/E = 40x\nMfg EPS = $28 x 8% = $2.24 | P/E = 13.4x
Result:Tech P/B 10.0x justified by 25% ROE | Mfg P/B 1.07x reflects lower 8% ROE | Context matters more than absolute P/B
Frequently Asked Questions
What is the price-to-book ratio and what does it measure?
The price-to-book (P/B) ratio compares a company market capitalization to its book value of equity, calculated by dividing the stock price by the book value per share. Book value represents the net asset value on the balance sheet (total assets minus total liabilities), which theoretically represents what shareholders would receive if the company liquidated all assets and paid off all debts. A P/B ratio of 1.0 means the market values the company exactly at its accounting book value. A P/B below 1.0 suggests the stock is trading below its net asset value (potentially undervalued or distressed), while a P/B above 1.0 indicates the market recognizes additional value beyond what appears on the balance sheet, such as brand value, intellectual property, or expected future earnings growth.
What is a good price-to-book ratio and how does it vary by industry?
What constitutes a good P/B ratio depends heavily on the industry and the company return on equity. Asset-heavy industries like banking typically trade at P/B ratios of 0.8-1.5, where book value closely reflects the fair value of financial assets. Industrial and manufacturing companies usually trade at 1.5-3.0 P/B. Technology and pharmaceutical companies often trade at 5.0-20.0+ P/B because their most valuable assets (intellectual property, software, brands) are not fully captured on the balance sheet. Value investors traditionally seek stocks trading below 1.0 P/B, following Benjamin Graham methodology. However, a low P/B may indicate fundamental problems rather than undervaluation. The most meaningful P/B analysis compares a company ratio to its own historical average and to direct industry peers operating with similar business models.
What is the difference between book value and tangible book value?
Book value equals total assets minus total liabilities, representing the net equity on the balance sheet including all asset types. Tangible book value further subtracts intangible assets such as goodwill, patents, trademarks, and other intellectual property that may be difficult to convert to cash in a liquidation scenario. For companies that have made significant acquisitions, goodwill (the premium paid above the acquired company net asset value) can represent a large portion of total assets, inflating book value substantially. The price-to-tangible-book (P/TB) ratio is considered a more conservative valuation metric because it only counts assets with clearly identifiable market values. Banks and financial institutions are often valued on tangible book value because their tangible assets (primarily loans and securities) are marked to market and have readily determinable values.
How does return on equity relate to the price-to-book ratio?
Return on equity (ROE) is the primary driver of the P/B ratio because it measures how efficiently a company generates profit from its book value equity base. Companies with high ROE deserve higher P/B multiples because each dollar of book value generates more earnings. The theoretical relationship is: P/B = (ROE - g) / (r - g), where g is the growth rate and r is the required rate of return. A company earning 20% ROE justifiably commands a much higher P/B than one earning 5% ROE. When P/B significantly exceeds what ROE would justify, the stock may be overvalued, and when P/B is below the ROE-implied level, it may represent an opportunity. This ROE-P/B framework is widely used by institutional investors for systematic screening. Consistently high ROE companies like those in technology tend to maintain elevated P/B ratios decade after decade.
References
Reviewed by Daniel Agrici, Founder & Lead Developer · Editorial policy