P/B Ratio

What is the P/B Ratio?

The price-to-book ratio compares a stock’s market price to its book value — the net assets (assets minus liabilities) per share. A P/B of 1 means the stock is priced exactly at its accounting net worth.

How to interpret it

A P/B below 1 can mean a genuine bargain or a troubled business the market has written down. P/B is most useful for asset-heavy businesses (banks, manufacturers) and least useful for asset-light ones (software, brands).

What’s a good P/B?

Below 1 is often "cheap" for asset-heavy firms; banks commonly trade at 1–3×. Asset-light businesses can justify much higher P/B because their value isn’t on the balance sheet.

Common mistakes

• Applying P/B to asset-light businesses where book value understates true worth.
• Assuming P/B < 1 is always a buy — it can be a value trap.
• Ignoring intangibles and off-balance-sheet items.