How price to book works

Price to book is the share price over book value per share:

$$\text{P/B} = \frac{P}{\text{BVPS}} = \frac{\text{Market cap}}{\text{Book equity}}$$

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. Divide those two and the ratio is 2.50 again.

The two routes are the same identity. Multiplying price and BVPS by the share count cancels, so market cap over book equity cannot disagree with price over BVPS unless one of the three inputs is from a different date than the others.

The price to book calculator on this page is both routes. The P/B explorer holds the price still and lets you drag BVPS. How book value per share works owns the $20. This page owns the 2.50.

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. A P/B of 1 is the accounting residual matching the market residual on this sheet, not a floor under the price, and not what a break-up would raise. The first sheet's 2.50 was the same $50 price on a thinner $20 of book. The multiple moved because the denominator moved.

Sorting a list by P/B low to high is a ranking of that ratio, not a bargain screen. A name at 1 can be a mark against the book that the market already believes. A name at 2.50 can be a franchise the accounts do not carry.

Price $80, BVPS $40, shares 50,000,000. P/B is 2. Market cap is $4,000,000,000. Book equity is $2,000,000,000.

The 2.00 is not the first sheet's 2.50, and the firm is smaller. The book pile is the same $2,000,000,000 as the first sheet, reached by a different price, a different BVPS, and half the share count. P/B hides that. Put the share count back in before lining two names up.

P/E against P/B is the earnings multiple against the book multiple. How the P/E ratio works is that other fraction. Do not paste this $2,000,000,000 of book onto the DuPont teaching equity. Different sheet, different firm.

It is not a P/E. P/E divides by a year's profit. P/B divides by the accounting residual. A profitable firm with thin book can print a high P/B and a modest P/E at once.

It is not tangible book. Identifiable intangibles stay in this denominator. Banks sometimes quote tangible P/B. Type the book your sheet is using.

It is not a liquidation bid. Specialised plant and in-house brands do not sit at sale value on the balance sheet.

When book equity is zero or negative the ratio stops working. Dividing a price by a negative residual does not produce a multiple anyone can spend. This calculator prints no P/B in that case rather than a nonsense figure. Negative book is a description of the residual claim. BVPS itself can still be written as a loss per share. That is not a P/B.

A P/B below 1 is common in asset-heavy sectors after a mark against the book. It is not, on its own, a bargain. Compare it with the same firm over time, or with a rival doing the same work, before treating the multiple as a score.

It is not a break-up model, not tangible book, and not a P/E. The three sheets are a $50 share on $20 of BVPS (P/B 2.50, market cap $5,000,000,000, book $2,000,000,000), the same price on $50 of BVPS (P/B 1, book $5,000,000,000), and an $80 share on $40 of BVPS with 50,000,000 shares (P/B 2, market cap $4,000,000,000). This is educational material, not financial advice.