Definition of Price To Book Ratio
Price to book ratio is a ratio of the market price of a share divided by the book value per share.
The formula for price to book value per share is as follows.
The investors use the price to book ratio to assess that a stock is undervalued or over-valued. Assume that a company has total equity of $50,000 and 2000 shares outstanding. The current market price is $23.
The price to book ratio will be as follows.
Book value per share = Equity / Number of shares
Book value per share = $50000 / $2000 = $25 per share
Price to book value ratio = $23 / $25 = 0.92
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