Price to book (P/B)
Price to book (P/B) compares a company's market capitalisation with its shareholders' equity — what would be left if it sold every asset and paid every debt at the value carried in the accounts. A P/B below 1 means the market is paying less than the books say. It is useful in banking and insurance, where the balance sheet genuinely reflects the business, and misleading for companies whose value sits in brands, software or people, which barely appear as assets.
How it is calculated
P/B = share price ÷ book value per share, and book value per share is shareholders' equity divided by shares outstanding. Take a company trading at 24 €, with 1,200 M€ of equity and 150 M shares: book value per share is 1,200 ÷ 150 = 8 €, so P/B is 24 ÷ 8 = 3. You are paying three times what the books say. The useful reading is never the bare number but what it is compared against: the same sector, and the company's own history. A P/B of 3 is expensive for a bank and ordinary for software.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is NOT
A low P/B does not mean cheap. It means the market does not believe those assets are worth what the books say, and sometimes the market is right. The ratio also breaks down when what the company is worth is not on the balance sheet: brands, software built in house and research spending are booked as expense rather than asset, so companies that live off intangibles show small equity and a high P/B without being expensive at all.
Formula
P/B = capitalización bursátil ÷ patrimonio neto See it on real data
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.