price to book ratio


A stock's capitalization divided by its book value. The value is the same whether the calculation is done for the whole company or on a per-share basis. This ratio compares the market's valuation of a company to the value of that company as indicated on its financial statements. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. A low ratio may signal a good investment opportunity, but the ratio is less meaningful for some types of companies, such as those in technology sectors. This is because such companies have hidden assets such as intellectual property which are of great value, but not reflected in the book value. In general, price to book ratio is of more interest to value investors than growth investors.

Use price to book ratio in a sentence

You need to make sure that you are following the price to book ratio so that you know the right time to get involved.

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In making their investment decisions value investors will typically examine a number of key metrics including the price to book ratio of a given company.

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Investors suggested to their clients that they should put some of their investments into the new business because its price to book ratio was so low, and the outlook was promising.

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