The price to book ratio is valuation metric used to measure a company's current price to its book value. In essence, it shows how much the market is pricing the value of the net assets on the company balance sheet. In other words, the PB ratio measures the difference between the book value and the market capitalisation of the company.
The PB ratio is calculated by dividing the current stock price per share by its book value per share (BVPS).
Price to Book Ratio = Share Price / Book Value Per Share (BVPS)
The book value per share is calculated by dividing the total company's book value (or equity) from the balance sheet by the total number of shares outstanding.
The PB ratio is measuring the difference between the market value of equity (or market cap) and the Book Value of equity (or the value of the equity on the company balance sheet). Therefore any value for PB ratio under 1 will be considered as undervalued e.g. that the market is pricing the company book value less than what is on the balance sheet. However there are no hard rules as it all depends on many different factors. The average PB ratio can vary significantly by industry and sector, and a good P/B ratio for one industry may be a poor ratio for another.
|Name||Price to book (P/B)||Marketcap||Industry|
|LNC Lincoln National Corp||0.28||$5.88B||Insurance - Life|
|MRO Marathon Oil Corp||0.3||$3.32B||Oil & Gas E&P|
|IVZ Invesco Ltd||0.35||$4.78B||Asset Management|
|AIG American International Group Inc||0.37||$22.77B||Insurance - Diversified|
|PRU Prudential Financial Inc||0.37||$24.47B||Insurance - Life|
Since the P/B ratio compares a company’s market capitalisation to its book value, theoretically if a company liquidated all of its assets and paid off all its debt, the value remaining would be the company’s book value. So it’s one way to approximate the value of the company and it might be useful especially for companies that use a lot of assets to run their businesses.