Price-to-Book Ratio (P/B Ratio)

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Definition of 'Price-to-Book Ratio (P/B Ratio)'

The price-to-book ratio (P/B ratio) is a financial ratio that compares a company's market value to its book value. It is calculated by dividing a company's market price per share by its book value per share.

The P/B ratio is used to determine whether a stock is undervalued or overvalued. A high P/B ratio indicates that a stock is expensive, while a low P/B ratio indicates that a stock is cheap.

There are a few things to keep in mind when interpreting the P/B ratio. First, the P/B ratio is only one of many factors to consider when evaluating a stock. Other factors to consider include a company's earnings, dividends, and growth prospects.

Second, the P/B ratio can vary significantly from industry to industry. For example, a company in the technology industry may have a higher P/B ratio than a company in the manufacturing industry. This is because technology companies typically have higher growth rates and are more likely to be profitable in the future.

Finally, the P/B ratio can be affected by changes in a company's financial statements. For example, if a company issues new shares of stock, its book value per share will decrease, which will cause its P/B ratio to increase.

Overall, the P/B ratio is a useful tool for investors to evaluate the relative value of a stock. However, it is important to keep in mind that the P/B ratio should be used in conjunction with other factors when making investment decisions.

Here are some additional things to know about the P/B ratio:

* The P/B ratio is often used to compare companies within the same industry.
* A company with a high P/B ratio may be considered to be a growth stock, while a company with a low P/B ratio may be considered to be a value stock.
* The P/B ratio can also be used to track a company's financial health over time.
* A company's P/B ratio can be affected by a number of factors, including its earnings, dividends, and growth prospects.

If you are interested in learning more about the P/B ratio, there are a number of resources available online. You can also consult with a financial advisor to get personalized advice on how to use the P/B ratio in your investment decisions.

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