P/B ratio abbreviates 'Price/Bookvalue', which means Share Price/Bookvalue.
P/B = Share Price/Bookvalue per Share Bookvalue per Share = (Assets - Liabilities)/Number of Shares.
Bookvalue is found in the company's balance sheet and is the company's own funds.
This key figure is used to show how the company's bookvalue is valued in relation to the share price. P/B is one of several valuation key figures.
The average P/B ratio is usually between 1.4 - 2.4, and varies greatly depending on how capital-intensive the company is and how profitable its assets are.
Things to keep in mind
- A low value is good.
- P/B = 3 means that the share price is triple the company's bookvalue.
- It can be difficult for some companies to determine the asset value; this would result in a misleading P/B figure.