Price to book value ratio(P/BV or P/B Ratio)


Price to book value ratio (P/B ratio) formula

Price to book value ratio(P/BV or P/B Ratio)

What is the price to book value ratio and, what does it tell you?

The price to book value ratio can be used to identify the market demand on the company shares.

The price to book value ratio is calculated by dividing a company's stock price by its book value per share or dividing market capitalization by company’s book value.


What does it mean by a higher price to book value ratio?

A company with a high price to book value ratio may indicate that the company’s share price may be overvalued. This may be because the company is famous among the investors due to its high return on investment.

So new investors may not be interested in such companies.


What does it mean by a lower price to book value ratio?

A company with a low price to book value ratio(especially less than 1) may indicate that the company’s share price may be undervalued.

There is a chance that the company with financial trouble may have a small price to book value ratio. So never depend on one indicator when analyzing shares.


How to use price to book value ratio?

Normally investors like to buy undervalued stocks. So the stocks with a price to book value ratio(especially less than 1) may be their choice. Together with use price to book value ratio investors may like to check company’s profitability growth and return on equity

Investors can use price to book value ratio for comparing companies within the same industry.


So never take decisions by only looking at sales PBV ratio. Always analyze as possible by considering different factors like other ratios and business news. Always try to use multiple ratios combinedly to get a more clear picture of a company.


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