The Price to Book ratio is a powerful tool for evaluating the value of stocks, especially for investors analyzing a company’s fundamental health. In this article, we’ll explore what the P/B ratio is, how it’s calculated, and how it’s used by investors to assess whether a stock is undervalued, fairly valued, or overvalued.
What is the Price to Book Ratio?
The Price to Book (P/B) ratio describe the company’s current market value as compared to its actual book value, which is the net value of its assets minus liabilities. It’s widely used in fundamental analysis to gauge if a stock’s price is aligned with the actual worth of its underlying assets.
Formula For Calculating Price to Book Ratio
P/B Ratio=Market Price per Share / Book Value per Share
In this formula:
Market Price Per Share– It is the stock’s current market price
Book Value Per Share– It is calculated by dividing company’s total book value to its total number of outstanding shares.
