Price-to-Book Ratio Calculator
Last updated: 27 June 2026
Reviewed by Gavin Meiring, Lead research and primary author · Doctoral Candidate (Corporate Governance) · Research and drafting assisted by AI
- Price-to-book compares the market's price for a company with its accounting net worth — and it's the ratio Benjamin Graham built his career on, codified with David Dodd in 'Security Analysis' (1934).
- Graham's most extreme strategy was buying 'net-nets' — stocks trading below their net current asset value — and his students, including Warren Buffett, made fortunes applying versions of it in the 1950s.
- P/B is most meaningful for asset-heavy businesses like banks and insurers, where book value tracks real capital — which is why regulators still use variants of it to police bank solvency.
Price-to-Book Ratio Calculator
A price-to-book (P/B) ratio calculator divides a company's market capitalisation by its book value of equity to show how much investors are paying relative to the company's net assets. It is used by value investors and analysts to identify potentially undervalued companies and compare valuations across asset-heavy industries.
How to Use the Price-to-Book Ratio Calculator
- Enter the current share price.
- Enter the book value per share, which is found on the company's balance sheet as total equity divided by shares outstanding.
- The calculator divides the share price by book value per share to produce the P/B ratio.
- Alternatively, enter total market capitalisation and total book value of equity for the same result.
- Compare the output to the company's historical P/B range, its peers, and sector averages.
The Formula
P/B Ratio = Share Price / Book Value Per Share
Book Value Per Share = (Total Assets - Total Liabilities) / Shares Outstanding
The book value represents the theoretical liquidation value of the company if all assets were sold and all debts repaid. A P/B ratio below 1 means the stock is trading below the value of its net assets on the balance sheet, which can indicate undervaluation or distress.
Real-World Example
A bank has a share price of £6.20. Its balance sheet shows total assets of £800 million, total liabilities of £720 million, and 100 million shares outstanding.
Book value of equity = £800m - £720m = £80 million.
Book value per share = £80,000,000 / 100,000,000 = £0.80 per share.
P/B Ratio = £6.20 / £0.80 = 7.75.
This bank trades at 7.75 times book value, meaning investors are paying a substantial premium to net assets. For a bank, this would be exceptionally high. More typical P/B ratios for banks are 0.8 to 1.5 times book value, depending on profitability and market conditions.
When P/B Is Most Useful
Price-to-book is most informative for asset-intensive industries where balance sheet assets are tangible and reliably valued, such as banks, insurance companies, property companies, and manufacturers. It is less useful for knowledge-intensive or service companies, where most value resides in intangible assets, brands, and intellectual property that are not fully reflected on the balance sheet. A software company or pharmaceutical firm may legitimately trade at 10 or 20 times book value because its competitive advantages are not captured by accounting standards. Context and cross-sector comparisons are essential when interpreting this ratio.
Frequently Asked Questions
What does a P/B ratio below 1 mean? A P/B below 1 means the market values the company at less than its net book value, implying the market believes the stated book value overstates the true worth of assets. This can indicate financial distress, poor return on equity, or a genuine bargain for value investors.
Is a low P/B always a buying signal? No. A low P/B can reflect genuine problems such as poor profitability, declining asset values, or structural industry challenges. Benjamin Graham's investment criteria included P/B below 1.5, but always paired with other financial health checks.
How does return on equity relate to P/B? Companies with consistently high return on equity command higher P/B ratios because they generate strong returns from their asset base. A company earning 20% on equity deserves to trade at a higher P/B than one earning 5%, even if both have similar book values.
Can book value be negative? Yes. Companies with accumulated losses or significant share buybacks funded by debt can have negative book equity. In such cases, the P/B ratio is meaningless and alternative metrics are needed.
Should I use book value or tangible book value?
Use both. Reported book value is the figure most screens quote, so it is the one to compare against a screen. Tangible book value removes goodwill and acquired intangibles, so it shows what would be left if those write-offs had already happened. For banks and insurers the gap between the two carries most of the information. Plug your own figures into the calculator above.
What does a P/B of 15 mean for a software company?
It means book value is the wrong lens. Software businesses fund growth from cash flow and hold few tangible assets, so equity stays small even when profits are large. Compare them on operating margin, revenue growth, or cash return on invested capital, and keep P/B for sectors where balance sheets are comparable.
How do I compare a company's P/B with its own history?
Use the same measure on both dates: reported book equity against reported book equity, tangible against tangible. Buybacks shrink book equity, so a company that steadily repurchases shares shows a rising P/B with no change in the share price. Read the ratio next to the share count and the equity balance rather than on its own.
Comparing three companies at the same market value
P/B only reads well against the assets a business needs to run. The three companies below all carry a market capitalisation of £2.0 billion. The figures are a worked illustration with round numbers, not an observation about any real company.
| Company | Market cap | Book equity | P/B | Return on equity |
|---|---|---|---|---|
| Regional bank | £2.0bn | £1.6bn | 1.25 | 9% |
| Property company | £2.0bn | £2.5bn | 0.80 | 4% |
| Software company | £2.0bn | £0.13bn | 15.38 | 25% |
The bank and the property company hold assets an accountant can value: loans, buildings, and land. The software company holds almost nothing that accounting standards put on the balance sheet, so its equity stays small and the ratio runs high. A P/B of 15.38 does not say the software company is expensive. It says book value measures the wrong thing for that business.
Tangible book value
Book equity includes goodwill and other intangibles left over from past acquisitions. Strip them out and you have tangible book value, the stricter measure. If the bank above carries £200 million of goodwill and acquired intangibles, its tangible equity is £1.4 billion and its P/B on the tangible figure is 1.43 instead of 1.25.
| Measure | Equity | P/B at a £2.0bn market cap |
|---|---|---|
| Book equity | £1.6bn | 1.25 |
| Tangible book equity | £1.4bn | 1.43 |
The gap widens for a company that bought its growth rather than building it. Two banks with the same reported P/B can hold very different amounts of hard assets, and the tangible figure separates them.
The link between return on equity and P/B
A company earning more on its equity than its cost of capital should trade above book value, and one earning less should trade below. The relation that formalises this comes from the dividend discount model: P/B = (ROE - g) / (r - g), where g is the sustainable growth rate and r is the required return. At r = 9% and g = 3%:
| Return on equity | Justified P/B |
|---|---|
| 6% | 0.50 |
| 9% | 1.00 |
| 12% | 1.50 |
| 20% | 2.83 |
| 25% | 3.67 |
A company earning exactly its 9% required return justifies a P/B of 1.00, which is the arithmetic behind the rule of thumb that a ratio near 1 implies no economic profit. Raise growth to 6% while holding the required return at 9% and the 25% ROE company justifies 6.33 rather than 3.67, because more of the return is retained and compounded.
The same relation shows why the software company's 15.38 cannot be explained by book value at all. At a 3% growth rate and a 9% required return it would need a 95% return on equity to earn that ratio. The market is valuing something the balance sheet does not hold, which is the honest reading of a very high P/B.
Why a P/B screen needs a sector filter
Sorting a whole market by P/B and buying the lowest readings collects banks, insurers, and property companies and almost nothing else. Those sectors dominate the bottom of the list because their assets sit on the balance sheet, which is the same reason the ratio suits them in the first place. Comparing a bank at 0.8 with a software firm at 15 describes accounting conventions, not value. Damodaran's sector table for US firms (data as of January 2026) puts regional banks at a P/B of 1.14, software (internet) at 10.86, retail building supply at 132.20, and the whole market at 4.61. The spread is that wide because the sectors hold different things on the balance sheet. Filter by sector first, then rank inside the sector.
Where the book value figure comes from
Book value of equity is the last line of the statement of financial position: total assets less total liabilities. It contains the original share capital, any share premium, and all retained earnings since incorporation, less any treasury shares the company holds.
Two consequences follow. First, an old company that has retained profits for decades carries a book value far above the cash it raised, so P/B near 1 does not mean the shares are available at the original subscription price. Second, the figure is a snapshot. A balance sheet dated nine months ago compared with today's share price mixes two dates, and the error grows with every quarter that passes. Read the balance sheet date next to the ratio.
Sources
- Corporate Finance Institute, price-to-book ratio. https://corporatefinanceinstitute.com/resources/valuation/price-to-book-ratio/. Accessed 2026-09-13.
- Damodaran, A., price-to-book ratio by industry, NYU Stern. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pbvdata.html. Accessed 2026-09-13. Sector averages refreshed each year.
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