The P/B Ratio Compares the Market’s Price With the Accounting Ledger

Book value says the shares are worth $20 each; the market closes them at $61.40. Somebody's paying three dollars for every dollar the ledger can see.

That multiple is the price-to-book ratio, or P/B: market price per share divided by book value per share. It measures how far the market's opinion sits from the accounting record.

P/B at a glance

• P/B equals share price over book value per share — or market cap over common equity.
• Above 1 means the market prices the company over its recorded net assets.
• Below 1 can signal cheapness, or assets the market doubts.
• It's most useful for banks and other asset-heavy businesses.

The quick math

A company with a $2 billion market capitalization and $1 billion of shareholders' equity trades at a P/B of 2. Investors are paying two dollars per dollar of book value.

Per share works the same way: a $40 stock with $20 of book value per share also sits at 2.

What high and low readings suggest

A high P/B says the market expects far more value than the balance sheet records — often brands, software, or earning power that accounting never capitalized. That's why a strong software company can trade at ten times book without being expensive in any useful sense.

A P/B under 1 looks like a discount, but the ledger might be the number that's wrong. Recorded assets can be impaired, hard to sell, or already spoken for by risks the balance sheet understates.

Where the ratio works — and where it doesn't

Book value is central to how banks and insurers earn, so P/B carries real signal there. For businesses built on people and ideas it says little, because most of their value never hits the books.

History muddies comparisons too: buybacks, acquisitions, and write-downs all reshape book equity. That's why P/B reads best next to an earnings-based measure like the P/E ratio.

The SEC's guide to reading a 10-K shows where to find the equity figures in a real filing.

Treat a low P/B as a question to investigate, never as a bargain already proven.