Price To Book Ratio Calculator

Paying for what the company owns

Every share is a claim on two things. A stream of future profits, and a pile of assets sitting there right now.

The price to earnings ratio prices the first. This one prices the second.

Price to book = Share price / Book value per share

Book value per share is what accounting says the owners' stake is worth, per share. Total assets minus total liabilities, divided by shares outstanding. It is the figure you would arrive at if the company sold everything at the values in its accounts, paid off every debt, and shared out what was left.

So a price to book of 1.0 means the market values the company at exactly what its accounts say the owners' stake is worth. Above 1 means the market is paying a premium over that. Below 1 means it is paying less than the accounting value of the assets.

Two boxes, and the answer to two decimal places. The interesting question is why anybody would ever pay five times.

A share at five times book

The same company as our other pages. Shareholders' equity of 40,000,000, 1,000,000 shares, so book value per share is 40.00. The shares trade at 200.

200 divided by 40 is 5.00.

The market is paying five times what the accounts say the owners' stake is worth. Buying the whole company at that price costs 200,000,000 for a set of net assets carried at 40,000,000.

Which sounds like a lot until you ask the obvious question. What are those assets producing?

Price to book is price to earnings times return on equity

This is not an approximation or a rule of thumb. It is an identity, and once you see why, the whole ratio makes more sense.

P/B = P/E × ROE

The reason is that the terms cancel. Price to earnings is price over earnings per share. Return on equity is earnings over book value, which per share is earnings per share over book value per share. Multiply them and earnings per share disappears from both, leaving price over book value per share.

Check it on ours. The P/E is 25. The ROE is 20 percent, or 0.20. Twenty five times 0.20 is 5.00, which is the price to book exactly.

You can verify this yourself across our tools. Run the same company through our price to earnings calculator and our return on equity calculator, multiply the two results, and you should land on whatever this page gave you. If the three do not agree, one of the inputs is on a different basis from the others.

What the identity tells you is more useful than the arithmetic. A high price to book is not a separate fact from a high return on equity. It is largely the same fact.

A company earning 20 percent on its book equity, in a world where investors require 12, deserves to trade above book, because each unit of accounting equity is generating more than the going rate. A company earning 5 percent on its equity when investors require 12 deserves to trade below book, because each unit of equity is being used to produce less than it could earn elsewhere.

Which gives you the cleanest reading of this ratio there is.

What a ratio above 1 is actually saying

The residual income framework puts it directly: a share trades above its book value when the market expects the company to earn a return on equity above its cost of equity, and below book when it does not.

So price to book is a market verdict on management, expressed as a multiple.

That last row is where value investors go looking, and it is also where the traps are. A ratio below 1 has two very different explanations and they need separating.

Either the market is wrong and there is a sound business being overlooked, which is the classic value opportunity. Or the market is right and the assets on the balance sheet are not worth what the accounts say, which happens all the time with obsolete plant, unsellable inventory and receivables that will never be collected.

A cheap price to book on a business with a persistently poor return on equity is usually the second one. That combination has a nickname among investors, the value trap, and the way to test for it is to look at the return on equity trend rather than the multiple.

If you want the missing piece, whether the return actually clears the cost of the capital, our residual income calculator does that subtraction directly and turns negative at exactly the point where a share stops deserving to trade above book.

What book value does and does not contain

The denominator is an accounting figure, and accounting has views about what counts.

It is historical cost, not market value. Land bought thirty years ago sits at what was paid for it, less any depreciation, not what it would fetch today. So an old asset heavy company can carry a book value far below reality, and its price to book will look high for reasons that have nothing to do with expensive shares.

It usually includes intangibles and goodwill. When a company acquires another and pays above the target's net assets, the difference sits on the balance sheet as goodwill. That inflates book value with something you cannot sell separately. Which is why analysts often use tangible book value, stripping out goodwill and intangibles first, and the resulting price to tangible book ratio is always higher.

It ignores things that were never bought. A brand built over decades, a research team, a customer base. None of it is on the balance sheet unless somebody paid for it in an acquisition. This is the single biggest reason software and consumer brand companies trade at enormous multiples of book: their most valuable assets are not in the denominator at all.

Buybacks distort it. Repurchasing shares above book value reduces equity by more than it reduces the share count, which pushes book value per share down and the ratio up. Companies that have bought back stock aggressively for years can end up with very small or even negative book value, at which point the ratio stops meaning anything.

This calculator takes book value per share as given, so which version you use is your decision. If you want the tangible figure, subtract goodwill and intangibles from equity before dividing by the share count. Just apply the same treatment to every company you compare.

Where this ratio earns its keep

Price to book is not equally useful everywhere, and knowing where it works is most of knowing how to use it.

Banks and insurers. This is its home ground. A bank's assets are financial instruments carried at values that mean something, its book value is a reasonably honest number, and price to book is the standard way the sector is valued. A bank trading below book is a genuine signal rather than an accounting artefact.

Asset heavy industries. Shipping, property, utilities, heavy manufacturing. The balance sheet holds real, valuable, identifiable things.

Loss making companies. Price to earnings breaks entirely when earnings are negative. Price to book keeps working, because equity is usually still positive. For a company between profitable periods, this is often the only multiple available.

Where it works poorly. Software, pharmaceuticals, consultancies, anything whose value is people and intellectual property. The assets that matter are not on the balance sheet, so the ratio is high everywhere and comparisons within the sector are more useful than the absolute level.

The general rule: the more of a company's value you could point at in a warehouse, the more this ratio is worth reading.

Questions people ask

What is a good price to book ratio?

It varies enormously by sector. Banks often trade near or below 1, asset light businesses many times higher. The useful test is the ratio against the company's own history and against direct competitors, read alongside the return on equity.

Is a ratio below 1 a bargain?

Sometimes. It means the market values the company below the accounting value of its net assets, which can be an oversight or can be the market correctly disbelieving those asset values. Check the return on equity trend before deciding which.

Where do I find book value per share?

Divide total shareholders' equity from the balance sheet by shares outstanding. Many data providers publish it directly, though they do not always say whether intangibles are included.

Should I use tangible book value?

It is the stricter measure and worth using for companies that have made large acquisitions, since goodwill can be a substantial share of equity. Subtract goodwill and intangibles from equity first. The resulting ratio will always be higher.

How does this relate to the P/E ratio?

Exactly. Price to book equals price to earnings multiplied by return on equity, because earnings per share cancels between the two. A high price to book is usually a high return on equity wearing different clothes.

What if book value is negative?

Then the ratio has no useful meaning and this calculator will not produce one. Negative equity usually follows heavy buybacks or accumulated losses, and the company needs looking at directly rather than through a multiple.

Why do technology companies have such high ratios?

Because their most valuable assets, code, brands, people and research, were largely never purchased and so never appear on the balance sheet. The denominator is missing most of the company.

References

A note on the sources. The claim that a share trades above book value when the market expects a return on equity above the cost of equity is not a market saying, it is the central result of the residual income approach to valuation, and CFA Institute states it in exactly those terms: intrinsic value is book value plus the present value of future residual income, and residual income is book value multiplied by the spread between return on equity and the required return. The definition of shareholders' equity, and what does and does not sit on a balance sheet, comes from the Securities and Exchange Commission's guide for investors.

1. CFA Institute, Residual Income Valuation, on intrinsic value as book value per share plus the present value of expected per-share residual income, and on residual income expressed as book value multiplied by the difference between return on equity and the required return on equity. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/residual-income-valuation
2. U.S. Securities and Exchange Commission, Beginners' Guide to Financial Statements, on shareholders' equity as the amount owners have invested, and on assets recorded at what the company paid for them. https://www.sec.gov/about/reports-publications/investorpubsbegfinstmtguide
3. U.S. Securities and Exchange Commission, Regulation S-X, Rule 5-02, requiring separate presentation of each class of intangible assets exceeding five percent of total assets, which is what makes a tangible book value figure recoverable from a filing.
4. Brealey, R.A., Myers, S.C., and Allen, F., Principles of Corporate Finance, McGraw-Hill Education, chapters on book value, market value and valuation by comparables.