Price-to-Book Ratio (P/B Ratio)
The Price-to-Book Ratio (P/B Ratio) is a financial ratio used to compare a company’s current market price to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share. The P/B ratio is used to compare a company’s market value to its book value, which is the total value of the company’s assets that shareholders would theoretically receive if the company were liquidated. The ratio is used to determine whether a stock is undervalued or overvalued.
History of the Term
The Price-to-Book Ratio (P/B Ratio) was first developed by Benjamin Graham, a renowned investor and professor of finance. Graham used the ratio to identify undervalued stocks. He believed that stocks with a low P/B ratio were undervalued and could be bought at a discount. Graham’s approach to investing was based on the idea that stocks should be bought at a discount to their intrinsic value. The P/B ratio was one of the tools he used to identify undervalued stocks.
Comparison Table
| Company | P/B Ratio |
|---|---|
| Company A | 2.5 |
| Company B | 3.0 |
| Company C | 1.5 |
Summary
The Price-to-Book Ratio (P/B Ratio) is a financial ratio used to compare a company’s current market price to its book value. It was first developed by Benjamin Graham to identify undervalued stocks. Companies with a low P/B ratio are considered to be undervalued and can be bought at a discount. For more information about the P/B ratio, you can visit websites such as Investopedia, The Motley Fool, and Yahoo Finance.
See Also
- Price-to-Earnings Ratio (P/E Ratio)
- Price-to-Sales Ratio (P/S Ratio)
- Price-to-Cash Flow Ratio (P/CF Ratio)
- Return on Equity (ROE)
- Return on Assets (ROA)
- Debt-to-Equity Ratio (D/E Ratio)
- Earnings Per Share (EPS)
- Dividend Yield
- Market Capitalization
- Book Value Per Share (BVPS)
