What it measures
Book value is a company's assets minus its liabilities, the accounting net worth shown on the The balance sheet. Price-to-book divides the share price by book value per share.
A P/B of 1 means the market values the company at exactly its accounting net worth. Below 1, the market values it at less than its books say it is worth.
Where it is useful
- Banks and insurers: their assets are mostly loans and securities marked close to market value, so book value is meaningful.
- Asset-heavy businesses: property, shipping, manufacturing.
- Value investing: classic value screens look for low P/B. See Growth, value and dividend investing.
Where it fails
Book value misses the assets that matter most for modern companies: software, brands, patents, customer relationships and talent. These rarely appear on the balance sheet. A great software company can trade at 15 times book and be reasonably priced.
Large buybacks also shrink book value, pushing P/B up without any change in the business.
Reading it with ROE
P/B and return on equity go together. A company earning 25% on its equity deserves a much higher P/B than one earning 5%. A low P/B with a low return is often a value trap, not a bargain. See Return on invested capital (ROIC).
See also
- The balance sheet How to read a balance sheet: assets, liabilities and shareholders' equity, the checks that matter, and how to judge a company's financial health.
- P/E ratio (price-to-earnings) What the P/E ratio means, trailing versus forward P/E, what counts as high or low, and why P/E alone can mislead without growth.
- Growth, value and dividend investing The three classic investing styles compared: what growth, value and dividend investors look for, the metrics each uses, and the risks of each approach.
- Return on invested capital (ROIC) ROIC shows how much profit a company earns on the money invested in it. Why it is the best single test of a moat, and how it compares with ROE.
Last updated September 30, 2026. Education only, not investment advice.