The Book Value and Price-to-Book Ratio (P/B Ratio) Explained: From Definition to Formulas & Examples

While the book value and price-to-book ratio (or p/b ratio, to keep things simple) aren't necessarily the most well-known metrics in the world, having them in your toolbox might just prove to be asymmetrically in your favor as an investor or trader.

In just one minute, the book value as well as the p/b ratio have been explained, an explanation which takes us from the basics (definition and formulas) to logical examples.

From the perspective of an investor who is interested in doing his homework, you will find out everything you need to know about these metrics.

Will you become a rockstar investor by understanding the book value?

The same way, is the price-to-book ratio something that can and will turn any losing investing/trading strategy around?

Of course not.

As explained in this video, these two metrics have clear limitations and there's absolutely nothing wrong with that.

Why should the book value or p/b ratio solve all of your problems as an investor or trader? Isn't it enough that they simply make any existing strategy a little bit better and a little bit more informed? As any wise investor can confirm... a solid career is not necessarily built exclusively via home runs :)

[OneMinuteEconomics]

If you liked this video, I think you'll love my personal finance book (Wealth Management 2.0) that has been written specifically for today's ultra-complex investment landscape and is available over at:

[jourdan]

I ended this video with more questions than when I started. It wasn't explained just formulas.

[rawsip]

thanks easy to understand. Great if you added an example as well

[Rio-byeh]

While this is good presentation it’s much better when a human makes the presentation; the engagement and human connection index is better

[OneMinuteEconomics]

GiganticWebsites.com is a project through which I make it possible for people to build truly gigantic websites (thousands of articles each!) at ridiculously low prices. If you have a great domain you want to turn into an amazing website or an existing site you'd like to upgrade/scale, visit our website or check out the One Minute Economics presentation video below:


Please note that this comment is not an ad for a third-party service provider. GiganticWebsites.com is my baby 100% and I will personally be involved in each and every project so as to ensure the website turns out great :)

[andrewmcglinchey]

I understand how a P/B ratio less than one is a very undervalued stock, however I don’t understand why anyone would buy a P/B ratio over one? If you buy a P/B ratio over one you are paying more money for less than it’s worth. If a P/B value is 2 then you are paying 200% of what it’s worth making it a bad deal right? This may sound stupid but I’m new and I don’t entirely understand why people pay a lot more for P/E and P/B then it’s worth, sorry for your time.

[ravis]

Better to make videos of 4 to 5 minutes so we can comprehend