Price to book value ratio explained - Evaluate companies using P/B ratio

Price-to-book value is the ratio of the market value of a company's shares over its book value of equity. The book value is defined as the difference between the book value of assets and the book value of liabilities. Price-to-book value ratio is often used by investors to understand whether a stock is valued high or low.

A Price-to-Book ratio of one means that the stock price is trading in line with the book value of the company. In other words, the stock price would be considered fairly valued. A company with a high Price-to-Book ratio could mean the stock price is overvalued, while a company with a lower PRICE-TO-BOOK could be undervalued.

Watch the video to understand the P/B with an example.

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