1. What is the P/B Ratio?

The Price-to-Book (P/B) ratio compares a company's market value to its book value. It's a financial metric used to evaluate whether a stock is undervalued or overvalued by comparing the market price per share to the book value per share.

2. How Does the Calculator Work?

The calculator uses the P/B Ratio formula:

Where:

• Market Price per Share — Current trading price of one share
• Book Value per Share — Company's net asset value per share (total assets minus intangible assets and liabilities)

Explanation: A lower P/B ratio could mean the stock is undervalued, while a higher ratio might indicate overvaluation. However, interpretation varies by industry.

3. Importance of P/B Ratio

Details: The P/B ratio is particularly useful for evaluating companies with tangible assets (like banks or manufacturing firms) and is often used in value investing strategies.

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 under 1.0 suggests the stock may be undervalued, while above 3.0 might indicate overvaluation. However, this varies by industry.

Q2: When is P/B ratio most useful?
A: Most useful for asset-heavy businesses like banks, insurance companies, and manufacturing firms with significant tangible assets.

Q3: What are limitations of P/B ratio?
A: Less meaningful for service or tech 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 looks at book value (assets minus liabilities) while P/E looks at earnings. P/B is more about balance sheet strength.

Q5: Can P/B ratio be negative?
A: Yes, if book value is negative (liabilities exceed assets), but this makes the ratio difficult to interpret meaningfully.