Price-to-Book Ratio (P/B)
A valuation ratio comparing a company's market price per share to its book value per share.
What is P/B Ratio?
The price-to-book (P/B) ratio compares a company's current market price per share to its book value per share (total shareholders' equity divided by shares outstanding). A P/B ratio below 1 implies the market values the company at less than its accounting net asset value, often signaling deep value or financial distress. P/B is most useful for asset-heavy industries like banking, insurance, and real estate, where book value closely approximates tangible worth. For technology and consumer brands with significant intangible assets (trademarks, software, IP), P/B can be very high — these assets are often not reflected on the balance sheet under GAAP. Benjamin Graham used P/B as a cornerstone of value investing.
Example
Wells Fargo trades at approximately 1.3x book value (P/B = 1.3). For a bank, this is typical — bank book values largely consist of loan portfolios and investment securities. Meanwhile, Microsoft trades at 13x book value (P/B = 13), reflecting massive intangible assets (software, Azure cloud platform, LinkedIn) that are not fully captured on the balance sheet.