Return on Equity (ROE) Calculator, Formula and Example
Net Income ($): Average Shareholder’s Equity ($): Calculate ROE Return on Equity (%): Alongside our intuitive Return on Equity Calculator, conveniently placed to your left,
The Price-to-Book (P/B) ratio shows the connection between a company’s per-share market price and its per-share book value. The ratio provides an estimate of the company’s inherent value, effectively revealing what shareholders could receive if the company was liquidated.
The P/B ratio holds particular significance for companies in capital-intensive sectors such as banking, where assets play a vital role in business operations. Here is an easy-to-follow guide on how to calculate it:
You compute the P/B ratio by dividing a company’s current market price per share (P) by its Book Value Per Share (BVPS). This ratio indicates how much investors are willing to pay for each dollar of the company’s net assets.
For instance, a P/B ratio of 1.5 means that investors are prepared to pay $1.5 for each dollar of the company’s net assets.
The current market price of a company’s stock can be found by entering the company’s ticker symbol on our P/B Ratio Calculator. If you already have this information, you can manually input the current market price.
The Book Value Per Share (BVPS) measures the per-share value of a company’s equity. Calculate it by subtracting a company’s total liabilities from its total assets (that is, the book value), then dividing this amount by the number of outstanding shares.
On our P/B Ratio Calculator, you can retrieve BVPS by simply inputting the ticker and clicking “fetch stock info.”
You can also access the necessary financial statements, usually the balance sheet, from a financial news website or trading platform. This will give you the company’s total assets, total liabilities, and number of outstanding shares.
Once you have these figures, you can compute the BVPS. After that, you can choose to input this manually.
With the current market price per share (P) and the book value per share (BVPS) in hand, you’re set to calculate the P/B ratio. The formula is simple: divide the market price per share (P) by the book value per share (BVPS).
Just click “Calculate P/B Ratio,” and you will get your result right away.
Once you’ve determined the P/B ratio using the price-to-book ratio calculator, it’s time to interpret it. However, defining a “good” P/B ratio isn’t as straightforward as it might initially appear.
A P/B ratio of 1 is generally seen as a benchmark. This suggests that the stock’s market price aligns perfectly with the company’s book value. It implies that, according to the market, the company’s asset value is fairly reflected in the stock price.
If the P/B ratio falls below 1, it could indicate that stocks might be undervalued. In simple terms, if the P/B ratio is under 1, the stock’s market price is lower than the book value per share. This can be seen as a good buying opportunity for investors, assuming the company’s assets are accurately valued and have solid future prospects.
Conversely, a P/B ratio above 1 typically suggests that the stock trades at a premium compared to the company’s book value. The market values the company’s stock higher than the worth of its underlying assets. This might suggest that investors are paying more than the value of the company’s net assets. Yet, a high P/B ratio can also reflect the market’s anticipation of the company’s future earnings growth or other intangible assets not captured in the book value.
Bear in mind, though, that what is deemed a “good” P/B ratio can vary greatly across different industries. For instance, sectors such as technology or biotech might have higher average P/B ratios, as a significant portion of their value lies in intangible assets like patents or software. On the other hand, industries with more tangible assets, such as real estate or manufacturing, might generally have lower P/B ratios.
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