PB Ratio (Price-to-Book Ratio)
A descriptive equity valuation multiple whose meaning depends on accounting book value, asset quality, profitability, and business model.
The price-to-book ratio (P/B) compares a share price with book value per share, or equity market value with common shareholders equity. The ratio is generally not meaningful when book value is zero or negative and does not by itself establish a discount, premium, or fair value.
Frequently Asked Questions
Does P/B below 1 mean the stock is undervalued?
No. A ratio below 1 can reflect asset impairments, expected losses, weak profitability, regulatory constraints, poor asset quality, or accounting values that are not realizable. It is a descriptive multiple, not proof of a bargain.
What happens when book value is zero or negative?
At zero book value the ratio is undefined. With negative book value, the arithmetic sign is generally not interpreted as a conventional valuation multiple.
Should P/B use total, common, or tangible book value?
The denominator should match the equity claim being valued. Analysts may use common equity or tangible common equity, but definitions differ and exclusions of goodwill or intangibles do not automatically produce realizable value.
Can P/B be compared across industries?
Only with caution. Banks, insurers, manufacturers, software companies, and asset-light businesses use and report assets differently. Profitability, leverage, asset quality, and accounting methods matter.