P/E vs price to book
P/E divides price by a year's earnings. P/B divides the same price by book value per share. A $50 share on $2.50 of EPS is 20 times. On $20 of book it is 2.50 times: $5,000,000,000 of market cap over $2,000,000,000 of book.
| P/E | P/B | |
|---|---|---|
| Formula | Price / EPS, or market cap / earnings. | Price / BVPS, or market cap / book equity. |
| Teaching sheet | The same $50 share on $2.50 of EPS is 20 times. Earnings $250,000,000. | $50 / $20 = 2.50 times. Book equity $2,000,000,000. |
| When book catches the price | P/E does not move just because book moved. It waits on a year's profit. | Raise BVPS to $50 and P/B is 1. Book equity equals the $5,000,000,000 market cap. |
| A smaller count | A different share count still needs its own EPS before anyone writes a P/E on that smaller firm. | An $80 share on $40 of book with 50,000,000 shares is 2 times on $4,000,000,000 of market cap. |
| What it is not | A book multiple. Profit and book are different denominators. | A P/E, a liquidation bid, or tangible book unless you type that book. |
On this page
Earnings in one denominator, book in the other
P/B is the share price over book value per share. On a $50 share with $20 of BVPS, P/B is 2.50. With 100,000,000 shares, market capitalisation is $5,000,000,000 and book equity is $2,000,000,000.
How price to book works owns the 2.50. How the P/E ratio works owns the 20. Same $50 price, same 100,000,000 shares: $2.50 of EPS against $20 of book.
A profitable firm with thin book can print a high P/B and a modest P/E at once. Those are two fractions, not a disagreement.
At book, the multiple is 1
Keep the $50 price and 100,000,000 shares. Raise BVPS to $50. P/B is 1. Book equity is $5,000,000,000, equal to market cap. The share did not get cheaper. Book caught up.
The third sheet is a smaller firm: $80 on $40 of book, 50,000,000 shares, P/B of 2, market cap $4,000,000,000, book equity $2,000,000,000. P/B hides scale the way P/E does. Put the share count back in before lining two names up.
How book value per share works owns the $20. This is educational material, not financial advice.
Worked examples
A \$50 share on \$20 of book
The share price is $50, BVPS is $20, and 100,000,000 shares are outstanding. What is P/B?
- P/B: .
- Market cap: , so $5,000,000,000.
- Book equity: , so $2,000,000,000.
- From the totals: .
P/B is 2.50. Market cap is $5,000,000,000. Book equity is $2,000,000,000. BVPS is $20.
The same price at book
Keep the $50 price and 100,000,000 shares. BVPS is now $50. What is P/B?
- P/B: .
- Market cap is still $5,000,000,000.
- Book equity: , so $5,000,000,000.
P/B is 1. Market cap and book equity are both $5,000,000,000. BVPS is $50.
An \$80 share on \$40 of book
Price is $80, BVPS is $40, shares 50,000,000. What is P/B?
- P/B: .
- Market cap: , so $4,000,000,000.
- Book equity: , so $2,000,000,000.
P/B is 2. Market cap is $4,000,000,000. Book equity is $2,000,000,000. BVPS is $40.
The same \$50 share as a P/E
Keep the $50 price and 100,000,000 shares. EPS is $2.50. What is P/E?
- P/E is price over EPS: .
- Market cap is still $5,000,000,000.
- Total earnings: , so $250,000,000.
P/E is 20. Market cap is $5,000,000,000. Earnings are $250,000,000. Book on this sheet is the separate $20 of BVPS, a 2.50 times P/B.
Common questions
Is this the same as P/E?
No. On the same $50 share, P/E is 20 times on $2.50 of EPS and P/B is 2.50 times on $20 of book. Same price, different denominator.
Is a P/B below 1 a bargain?
It means the market residual is below the accounting residual on this sheet. That is ordinary in some sectors. It is not a liquidation bid.
Book or tangible book?
This page is book equity. Tangible book takes identifiable intangibles out. Type the book your sheet is using.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.