Price / Book (P/B): Definition and Usage
P/B compares market value to book value and can be useful for asset-heavy or financial firms. It is less meaningful for businesses with significant intangible assets.
Formula
Book value typically equals total equity (assets minus liabilities). Adjust book value for intangible assets or revaluations when appropriate.
Why it matters
- Low P/B ratios can indicate undervaluation for asset-rich companies, but could also signal distress.
- P/B is less meaningful for asset-light or service businesses with significant intangible assets.
- Compare P/B across similar businesses and adjust for accounting differences.
Implementation notes
- Use consistent accounting definitions across peers (book value per share at the same date).
- Consider tangible book value (exclude goodwill/intangibles) when valuing asset-heavy firms.
- Combine with other multiples (P/E, EV/EBITDA) for a fuller picture.