P/B Ratio

Price-to-Book ratio: share price divided by book value per share. P/B is the canonical asset-heavy-business multiple -- it works well for banks, insurers, and REITs where book value approximates the economic value of the balance sheet. Common misuse: applying P/B to asset-light businesses (software, consulting, brands) where the balance sheet captures almost none of the actual economic value. A SaaS company at P/B of 30 is not necessarily 'expensive' -- its real assets (engineers, customer relationships, codebase) aren't on the balance sheet at all. P/B is also distorted by buybacks, which shrink book value mechanically.

Related terms

Adjusted Cost Basis · Annuity · Capital Gains Distribution · Capitalized Interest · Cost Basis · Dividend Discount Model (DDM)

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