1. What is P/B Ratio?

The Price-to-Book (P/B) ratio compares a company's market value to its book value. It indicates whether a stock is undervalued or overvalued by comparing the market's valuation to the company's accounting value.

2. How Does the Calculator Work?

The calculator uses the P/B Ratio formula:

Where:

• \( Market\ Price\ Per\ Share \) — Current stock price
• \( Book\ Value\ Per\ Share \) — Company's net asset value per share

Explanation: The ratio shows how much investors are willing to pay for each dollar of net assets.

3. Importance of P/B Ratio

Details: P/B ratio is particularly useful for evaluating financial companies and asset-heavy businesses. A ratio under 1.0 could indicate an undervalued stock.

4. Using the Calculator

Tips: Enter the current market price per share and the book value per share in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good P/B ratio?
A: Generally, a P/B ratio under 1.0 suggests the stock may be undervalued, while a high ratio may indicate overvaluation. However, this varies by industry.

Q2: Why is P/B ratio important?
A: It helps investors compare market value to accounting value, identify potential value stocks, and assess financial health.

Q3: What are limitations of P/B ratio?
A: Less useful for service or technology companies with few tangible assets. Doesn't account for future earnings potential.

Q4: How does P/B differ from P/E ratio?
A: P/B focuses on asset value while P/E focuses on earnings. P/B is more stable as book value changes less than earnings.

Q5: Can P/B ratio be negative?
A: Yes, if book value is negative (liabilities exceed assets), the ratio becomes negative and loses its usefulness.