Valuation · updated October 21, 2026
What is P/B (price-to-book ratio) and how is it calculated
P/B compares the stock market price with the company's value on its balance sheet: what shareholders would be left with if everything were sold and every debt paid. A P/B of 1 means the market values the company exactly at its book value.
P/B formula
- Shareholders' equity
- Assets minus liabilities, from the latest balance sheet. Also called book value.
- Per share
- Equity divided by the number of shares.
Worked example
A bank has equity of $40 per share and the stock costs $48.
Investors pay 20% above book value, usually because the bank earns a good profit on its capital.
How to read P/B
P/B matters a lot for banks and insurers, where the balance sheet is the business. For tech companies the real value (software, brands, people) is not on the balance sheet, so a high P/B is normal.
When P/B can fool you
Old balance sheet: buildings and land are carried at what they cost, not what they are worth today. Big buybacks: they shrink equity and push P/B up even though the business has not changed.
Related terms
Questions about P/B
Does a P/B below 1 mean the stock is cheap?
Not necessarily. Sometimes the market expects the assets to be worth less than the books say, or the company to lose money. Check ROE: a very low ROE often explains a P/B below 1.
Why does P/B matter for banks?
Because a bank's assets are mostly loans and securities, valued close to what they are really worth. For banks, read P/B and ROE together.
These explanations are for information only. They are not a recommendation to buy or sell.
Back to the glossary