|Price to book ratio (P/B)|
Price to book ratio (P/B)
To calculate price to book ratio, take the book value per share and divide by the last reported close.
For example: If a company's close price was $10 and the book value per share was $2, then the price to book ratio would be 5 (10/2=5). A price to book ratio is similar to P/E in the respect that it can also be calculated using individual stocks or market indexes like the S&P.
It is important that investors using price to book value ratio understand book value and its limitations. Limitations in book value also directly apply to price to book ratio.