Price-to-Book (P/B)
Price-to-book (P/B) is the share price divided by book value per share, where book value is the company’s assets minus its liabilities as recorded on the balance sheet. It measures what the market pays for each dollar of net accounting assets.
The math
A stock at 30 dollars with 20 dollars of book value per share trades at 1.5 times book. Below 1.0, the market prices the company at less than its accounting net worth, which historically defined the classic value hunting ground.
The catch is in the word accounting: balance sheets record cost, not worth.
Book value = assets minus liabilities, at accounting cost.
The trap
Treating book value as liquidation value. Modern balance sheets miss most of what makes companies valuable: brands, software, network effects, and expertise largely sit outside book value, which is why great asset-light businesses trade at 10 times book without being expensive.
The mirror error: a factory carried at cost may fetch a fraction of it in a forced sale. P/B under 1 can mean bargain or accurately priced decay, and the ratio alone cannot tell you which.
The move
Reserve P/B for businesses whose assets are financial and marked close to reality: banks and insurers, where it remains a core metric, always read together with return on equity. A bank at 0.8 times book earning 12 percent on equity and one at 0.8 times book earning 4 percent are different investments wearing the same ratio.