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# Price-to-Book (P/B) Ratio Calculator

Market Cap Basis
Per Share Basis


The Two Methods to Calculate P/B Ratio in the Calculator:

## Method 1: Market Capitalization / Book Value of Equity

The first method to calculate the Price-to-Book (P/B) ratio involves using Market Capitalization and Book Value of Equity. The formula is:

P/B Ratio = Market Capitalization / Book Value of Equity

Where:

• Market Capitalization: The total market value of a company’s outstanding shares. We calculate it by multiplying the current stock price by the total number of outstanding shares.
• Book Value of Equity: This is the net asset value of a company as recorded on the balance sheet. It represents the total value of the company’s assets that shareholders would theoretically receive if the company were liquidated.

The P/B ratio measures a company’s market value relative to its book value. If the P/B ratio is less than 1, it might suggest that the stock is undervalued relative to its book value. Conversely, a ratio higher than 1 could indicate overvaluation. However, this varies by industry.

## Method 2: Stock Price / Book Value Per Share

The second method to calculate the Price-to-Book (P/B) ratio is:

P/B Ratio = Stock Price / Book Value Per Share

Where:

• Stock Price: The current trading price of a single share of the company’s stock. It reflects the market’s current valuation of a single share.
• Book Value Per Share: The book value of equity divided by the number of outstanding shares. It represents the amount of equity available to shareholders on a per-share basis.

The P/B ratio, calculated this way, provides a more granular view than the first method.

Related Calculator: Book Value Per Share (BVPS) Calculator.

## P/B Ratio Calculation Example

Let’s illustrate how to use both methods to calculate the Price-to-Book (P/B) ratio with a hypothetical company XYZ Corp. Let’s say the book value of this company’s equity is $3 billion. Its current stock price is$50 per share, and it has 100 million shares outstanding.

Using the method 1:

• Market Capitalization = $50 (stock price per share) × 100,000,000 (shares) =$5 billion
• Book Value of Equity =  $3 billion • P/B Ratio =$5 billion (market capitalization) / $3 billion (book value of equity) ≈ 1.67 Using the method 2: • Stock Price =$50 per share
• Book Value Per Share =  $3 billion (book value) / 100 million (shares) =$30 per share
• P/B Ratio = $50 (stock price per share) /$30 (book value per share) ≈ 1.67

The two methods should finally derive the same result. A P/B ratio of 1.67 indicates that the market values XYZ Corp at 1.67 times its book value. Comparing the P/B ratio with industry averages or competitors could offer you a more fair valuation of this company.

Our P/B ratio calculator is aimed to offer insights into how the market values a company relative to its book value. While a useful tool, remember to consider them as part of a broader analysis, including other financial metrics and qualitative factors.

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