P/B Ratio (Price-to-Book)

P/B compares a stock’s price with the accounting value of its net assets per share.

Why investors care

It helps spot stocks trading below the value of their tangible assets.

Using it in practice

Reach for P/B mainly with financials and asset-heavy firms where book value is a meaningful floor. For software, services, and brands, rely on P/E, P/S, or cash-flow multiples instead.

Example in numbers

In the real market

An insurance company trades at 0.8 times book value while a software firm trades at 8 times. A value investor might see the insurer as the bargain, and for a balance-sheet business like insurance, book value genuinely matters — it is the pool of assets backing the policies. But the same 0.8 multiple on a manufacturing firm can be a trap if its factories are worth far less on the open market than their depreciated book value. P/B only works where the assets are real, mark-to-market, and likely to retain value.

Where people go wrong

Book value understates intangibles like brands and software, so P/B fits asset-heavy firms best.

Key takeaway

P/B works where book value is a genuine anchor — banks, insurers, and asset-heavy businesses — and fails where the value lives in intangibles. A low P/B in the wrong industry is not a bargain signal, and a high one in software says little. Check whether the book assets are real and mark-to-market before treating the ratio as a floor, and prefer tangible book value when you want the strictest test. The ratio is a sector tool, not a universal one.

Definitions reviewed by the Investing Glossary editorial team.