What is the Considered the Good Price-To-Book Ratio? – Definition, Basics
Price-to-Book Ratio Definition
The price-to-book ratio (PBR) takes favor by value investors for decades, and it widely uses by market analysts.
And traditionally, any value under 1.0 considers the good P/B value, indicating the potentially undervalued stock.
However, value investors often consider stocks with a P/B value under 3.0. It’s important to note that it is challenging to pinpoint the specific numeric value of the “good” P/B ratio.
When determining if the stock undervalues and, therefore, the right investment, ratio analysis can vary by industry, and the good P/B ratio for one industry the low rate for another.
What are the Basics of the Price-to-Book Ratio?
- The Price-to-book-ratio compares the company’s market capitalization, and market value, to its book value.
- And specifically, it compares the company’s stock price to its book value per share (BVPS).
- And also, the market capitalization company’s value its share price multiplied by the number of outstanding shares.
- The book values total assets – total liabilities, and it originates in the company’s balance sheet.
- Also, in other words, if the company liquidated all of its assets and paid off all its debt, the remaining value must in the company’s book value.
- Also, it’s helpful to identify some general parameters and the range for the P/B value. Then, consider various other factors and valuation measures that extra accurately interpret the P/B ratio and forecast its growth potential.
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How to Calculating the P B Ratio Example
- Firstly, as stated earlier, the P/B ratio examines the company’s stock price to its BVPS. The rate calculates as follows:
- Secondly, Price-to-book-Ratio = Market Price per Share ÷ Book Value per Share (BVPS)
- Lastly, BVPS = (Total Shareholder Equity – Preferred Equity) ÷ Total Outstanding Shares
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