The price-to-book ratio (P/B) is a financial ratio used to compare a company's book value to its current market price. This is calculated as the Current Price divided by the latest annual Book Value Per Share. Book value denotes the portion of the company held by the shareholders; in other words, the company's assets less its total liabilities. This version includes intangible assets and goodwill, unlike Price to Tangible Book Value.
This is a key metric for value investors, whereas growth investors typically believe that book value reveals very little about a company's prospects for future performance.
The price / book value ratio rarely falls below 1.0. As with most ratios, it varies a fair amount by industry (companies that require more infrastructure capital will usually trade at P/B ratios much lower than, for example, consulting firms). P/B ratios are often used to compare banks, because most assets and liabilities of banks are constantly valued at market values.
A company that can't make an ROE greater than its cost of capital may be expected to have a low price to book. Therefore, look for a low PBV combined with a high ROE and low default risk.