P/B ratio

Definition

P/B ratio in plain English

"Book value" is what the company's own accounting says its net worth is — everything it owns minus everything it owes, per share. The P/B ratio compares the stock's market price to that accounting value: price per share divided by book value per share. If a stock trades at $30 and its book value is $10 per share, the P/B is 3, meaning investors pay three times the accountants' net-worth figure — usually because they expect the company to be worth more than its paperwork suggests. It's like a house whose official tax-assessed value is $200,000 selling for $600,000 because buyers love the neighborhood.

Learn these first

• Return on equity (ROE)
• Cost of equity

Related Principles of Finance terms

• Accrued interest
• Allocation effect
• Basis
• Basis point
• Benchmark
• Bond-equivalent yield (BEY)
• Bootstrapping
• Callable bond
• Clean price
• Comparable company analysis (comps)