Price-to-Book Ratio (P/B)
A balance-sheet valuation multiple that depends on the selected equity definition, accounting measurements, asset quality, and expected returns.
Price-to-book compares a company equity market value with a selected book-equity measure. Common book value, total equity, and tangible book value can produce different results. The ratio does not directly measure liquidation value, intrinsic value, or the quality of the underlying assets.
Frequently Asked Questions
What is a good price-to-book ratio?
There is no universal range. Appropriate multiples depend on expected return on equity, growth, risk, asset quality, leverage, accounting, and sector economics.
Is book value an estimate of liquidation proceeds?
No. Sale prices, taxes, transaction costs, secured claims, contingencies, and liquidation priorities can produce very different proceeds.
Is P/B useful for companies with negative earnings?
It may provide another reference point when earnings are negative, but it is not automatically informative. Negative or impaired book value, weak asset quality, and expected losses can also make P/B difficult to interpret.
Why can asset-light firms have high P/B ratios?
Internally developed software, brands, data, customer relationships, and workforce value may not be fully recognized as assets. A high P/B still does not prove growth or fair value.