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Book Value vs Price-to-Book Ratio

Book value:  A company's net assets after liabilities are subtracted from assets.

Formula:

Book Value = Total Assets − Total Liabilities

Book value provides an estimate of the company's accounting value and is often used when evaluating financial institutions and asset-heavy businesses.

 

Price-to-Book ratio: A company's market value to its book value.

Formula:

P/B Ratio = Market Price per Share ÷ Book Value per Share

Investors often use the P/B ratio to evaluate whether a stock may be trading above or below its accounting value.

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