Our Price-to-Book (P/B) Ratio Calculator allows you to quickly and easily calculate the P/B ratio of your stocks. Select your preferred calculation method and enter the required data.
Instantly get the P/B ratio based on your chosen method. This tool is ideal for investors aiming to assess the value of their investments.
Calculating the P/B Ratio
Below are the formulas and steps for calculating different variations of the Price-to-Book ratio:
Standard P/B Ratio
The standard P/B ratio is calculated by dividing a company’s current stock price by its book value per share. Book value represents the company’s equity, distributed across all outstanding shares. This approach considers all assets and liabilities, including intangible assets like patents or goodwill.
Formula:
\(\text{P/B Ratio} = \frac{\text{Stock Price}}{\text{Book Value per Share}} \)Example:
If a company has equity of $500,000 and 50,000 outstanding shares, the book value per share is $10. With a stock price of $50, the P/B ratio would be:
\( \text{P/B Ratio} = \frac{50}{10} = 5 \)Tangible Book Value
The tangible book value focuses only on a company’s tangible assets by subtracting intangible assets from equity. This method can be useful when a company’s intangible assets are significant, and you want to exclude them from the valuation.
First, calculate the tangible book value per share:
\(\text{Tangible Book Value per Share} = \frac{\text{Equity} – \text{Intangible Assets}}{\text{Outstanding Shares}} \)Then, calculate the P/B ratio based on tangible book value:
\(\text{P/B Ratio} = \frac{\text{Stock Price}}{\text{Tangible Book Value per Share}} \)Example:
If a company has $500,000 in equity, $100,000 in intangible assets, and 50,000 outstanding shares, the tangible book value per share is $8. With a stock price of $50, the P/B ratio would be:
\(\text{P/B Ratio} = \frac{50}{8} = 6.25 \)
Tangible Common Equity (TCE)
The Tangible Common Equity (TCE) method subtracts both intangible assets and preferred stock from equity to reflect the “real” equity available to common shareholders. This is commonly used in the financial sector for a clearer view of shareholder equity.
First, calculate TCE per share with this formula:
\( \text{TCE per Share} = \frac{\text{Equity} – \text{Intangible Assets} – \text{Preferred Stock}}{\text{Outstanding Shares}} \)Then, calculate the P/B ratio based on TCE:
\(\text{P/B Ratio} = \frac{\text{Stock Price}}{\text{TCE per Share}} \)Example:
If a company has $500,000 in equity, $100,000 in intangible assets, $50,000 in preferred stock, and 50,000 outstanding shares, the TCE per share is $7. With a stock price of $50, the P/B ratio would be:
\(\text{P/B Ratio} = \frac{50}{7} = 7.14 \)
Adjusted Book Value
The Adjusted Book Value accounts for one-time or extraordinary items, allowing you to filter out unusual factors and get a more realistic view of the book value.
First, calculate the adjusted book value per share:
\(\text{Adjusted Book Value per Share} = \frac{\text{Equity Adjusted for One-Time Items}}{\text{Outstanding Shares}}\)Then, calculate the P/B ratio based on the adjusted book value:
\(\text{P/B Ratio} = \frac{\text{Stock Price}}{\text{Adjusted Book Value per Share}} \)Example:
If a company has $500,000 in equity, one-time adjustments of $50,000, and 50,000 outstanding shares, the adjusted book value per share is $9. With a stock price of $50, the P/B ratio would be:
\(\text{P/B Ratio} = \frac{50}{9} = 5.56 \)Practical Example: Standard P/B Ratio Calculation
Suppose we have the following data for a company:
- Stock Price: $50
- Equity: $500,000
- Outstanding Shares: 50,000 shares
To calculate the Price-to-Book (P/B) ratio, follow these steps:
Calculate Book Value per Share:
\(\text{Book Value per Share} = \frac{\text{Equity}}{\text{Outstanding Shares}}\)Inserting Values:
\(\text{Book Value per Share} = \frac{500,000}{50,000} = 10 \)Calculate the P/B Ratio:
\(\text{P/B Ratio} = \frac{\text{Stock Price}}{\text{Book Value per Share}}\)Inserting Values:
\(\text{P/B Ratio} = \frac{50}{10} = 5\)The Price-to-Book (P/B) ratio in this case is 5.
Definition: What is the Price-to-Book Ratio?
The Price-to-Book (P/B) ratio is a financial metric that compares a company’s stock price to its book value per share. The book value represents the balance sheet value of the company’s equity divided by the total number of outstanding shares.
The P/B ratio is used to determine whether a stock is undervalued or overvalued. A low P/B ratio might suggest that a stock is undervalued relative to its book value, potentially indicating a good buying opportunity.
A high P/B ratio might indicate that a stock is overvalued. However, the P/B ratio should always be interpreted within the context of the industry and the overall market, as different sectors have different average P/B values.
Stock Valuation Interpretation
Our table provides a common interpretation of the Price-to-Book (P/B) ratio and its significance for stock valuation.
| P/B Category | Interpretation | Implications for Stock Valuation |
|---|---|---|
| P/B < 1 | Very Low | The stock may be undervalued, or the company might be facing serious issues. Further analysis is required. |
| 1 ≤ P/B < 2 | Low | The stock might be undervalued and could present a good buying opportunity, especially if the company shows solid growth. |
| 2 ≤ P/B < 3 | Moderate | The stock is likely fairly valued, often reflecting the market average. |
| 3 ≤ P/B < 4 | High | The stock could be overvalued. Exercise caution, particularly if the company lacks strong growth. |
| 4 ≤ P/B < 5 | Very High | The stock is likely overvalued unless the company demonstrates exceptional growth. |
| P/B ≥ 5 | Extremely High | This could indicate a speculative bubble or overly optimistic expectations. Extreme caution is advised. |
This table provides a typical interpretation of the Price-to-Book (P/B) ratio and its implications for stock valuation.