Stock valuation ratios-2: Price to book value (P/B)

 

Stock Market Data

Price to book value (P/B) is the ratio of market price per share to book value per share.

In order to calculate P/B ratio, we should find the book value per share from the company’s balance sheet. Firstly, we find shareholder’s equity which is total assets minus total liabilities.

Then, sinceĀ our purpose is to value common stock, we substract from shareholder’s equity any value attributable to preferred stock. Thus we obtain common shareholder’s equity or the book value.

After finding book value, we divide book value by the number of common stock shares outstanding to obtain book value per share.