Price to book (P/B)
ValuationMarket cap as a multiple of the accounting book value of shareholders' equity.
Formula
P/B = market cap ÷ shareholders' equity (when equity is positive)
Why it matters
Book value is the accountants' estimate of net assets — what would notionally remain if assets were sold and liabilities paid. P/B was the original value-investing yardstick, and it remains the most relevant multiple for businesses whose assets are financial and marked near market value: banks, insurers, and asset holders. A price far below book, when the assets are real, offers a margin of safety independent of earnings.
What good looks like
For financial companies, below 1x book with adequate returns on equity has historically been cheap, and 1–2x normal. For modern asset-light companies the ratio is largely uninformative — great franchises routinely trade at 10x+ book because their true assets (brands, software, networks) are not on the balance sheet. High P/B paired with high, durable ROE is normal, not necessarily expensive.
Caveats
Decades of buybacks and intangible-heavy accounting have detached book value from economic value at most large companies; some excellent businesses have negative equity, making P/B undefined. Goodwill can prop up book value that impairments later erase. Treat P/B as a specialist tool for financials and asset plays, not a general valuation measure.