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P/B Ratio (X)
Price-to-book ratio (P/B) is a kind of tool to estimate the stock value.Calculation method: P/B ratio = share price / NAVIf the P/B is bigger than 1, the share price is higher than...
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P/B Ratio (X)
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Price-to-book ratio (P/B) is a kind of tool to estimate the stock value.

Calculation method: P/B ratio = share price / NAV

If the P/B is bigger than 1, the share price is higher than the book value of the company; vice versa, if the reading is below 1, indicating a cheaper share price. In general, the lower the P/B ratio, the lower the stock valuation, implying it is relatively a good bargain.

P/B ratio is often used to compare stocks within the same industry as average P/B is different for different sectors. P/B is always used to analyze and evaluate the investment value of bank or real estate stocks. The companies of these industries own massive amount of assets, and their profitability is critically hinged on the asset value of the company. For example, banks can make profit through lending if they possess enormous amount of customer deposits; for property developers, they can sell or lease out properties to create profit as long as they own overwhelming properties. On the other hand, such companies can still earn a great deal of profit upon asset disposal if their operation fails and has to come to liquidation. Hence, it is important to learn and calculate the book value of the stock.

There are various ways to measure the stock value. P/B is only one of the indicators. If investors want to assess whether the stock is a good bargain, they should stay vigilant to market condition and the industry the stock belongs to and look for appropriate measurement.
Formula
Share Price / NAV

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