Price-to-book (P/B) ratio is used to compare a company’s market value to their book value. This is done by dividing the price per share (share price) by the Book Value Per Share (BVPS).
P/B ratio = Price per share / Book value per share
To calculate the above, you first need to work out the BVPS (book value per share). To do this, you take the total assets - total liabilities and then divide that figure by the number of shares outstanding (total amount of shares a company has).
BVPS = (total assets - total liabilities) / number of shares outstanding (total amount of shares a company has)
A lower P/B ratio could mean the stock is trading at a lower price to what the company is worth by its Book Value or that something is fundamentally wrong with the company ie. not a good buy.
Likewise a higher P/B ratio could mean the stock is trading at a higher price to what the company is worth by its Book Value.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
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