Price to book (P/B)
What you pay for one unit of the accounting value of the company's net assets.
For asset-heavy businesses it anchors price to something that was actually bought and paid for, which earnings do not.
How it is computed here
Market capitalisation / shareholders equity
Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it. Filed under value. Neither a high nor a low reading is good on its own, so it is never coloured as one.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 1.00x | Below stated book value |
| 1.00x to 1.50x | Within Graham's defensive ceiling |
| 1.50x to 3.00x | Ordinary market range |
| 3.00x and above | Premium to net assets |
A practitioners’ convention, not an estimated boundary. Graham, The Intelligent Investor (rev. ed. 1973), ch. 14 defensive-investor criteria. Graham's combined test is P/E x P/B at or below 22.5.
When it misleads
- Book value ignores everything a modern company builds without capitalising it: brands, software, research, trained people. An asset-light business will always look expensive here.
- Negative shareholders equity makes the ratio meaningless. It is shown as "n/m", never as a number.
- Goodwill from acquisitions inflates book value until it is written off, at which point the ratio jumps with no change in the business.
Reads differently for banks, insurers: the figure is shown with that caveat attached.
Questions
How is price to book calculated?
Market capitalisation / shareholders equity. Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it.
What does price to book tell a value investor?
For asset-heavy businesses it anchors price to something that was actually bought and paid for, which earnings do not.
When does price to book mislead?
Book value ignores everything a modern company builds without capitalising it: brands, software, research, trained people. An asset-light business will always look expensive here. Negative shareholders equity makes the ratio meaningless. It is shown as "n/m", never as a number. Goodwill from acquisitions inflates book value until it is written off, at which point the ratio jumps with no change in the business.