Price-to-Book (P/B)
Market value of equity divided by accounting book value — classic asset-based metric.
Definition
P/B measures how much investors pay for each dollar of accounting equity. P/B below 1.0 means the stock trades below book value — historically attractive for value investors but also a sign of distress in modern equity markets. P/B works best for asset-heavy businesses (banks, insurers, REITs, industrials) and is misleading for asset-light businesses (software, brands) where most economic value lives off the balance sheet. It is part of Fama-French's HML factor.
Formula
P/B = Market Cap / Book Value of Equity
= Price per Share / Book Value per Share
Book Value of Equity = Total Assets - Total Liabilities - Preferred StockWorked example
JPMorgan trades at $190 with $98 of book value per share: P/B = 1.94x. A regional bank in distress may trade at $11 with $20 of book value per share: P/B = 0.55x — implying the market expects further book-value impairments.
How ARIA Analyst uses it
ARIA uses P/B heavily in the Financials sector model and as a feature in the value factor of the Multi-Factor Agent.
Related terms
P/E Ratio
Share price divided by earnings per share — the most popular valuation multiple.
Return on Equity (ROE)
Net income divided by shareholders’ equity — profitability per dollar of equity capital.
Residual Income Model
Equity value as book value plus the present value of excess returns over cost of equity.
Discounted Cash Flow (DCF)
Intrinsic value of an asset as the present value of its future cash flows.
See Price-to-Book (P/B) in action on any asset
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