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Price to Book (MRQ)

Price to Book (MRQ)

Price to book compares the market value of the company to its accounting book value. Low values can hint at undervaluation or weak assets, while high values can reflect strong brands or intangible value.

How it relates

Market CapitalizationMarket capitalization is the total value of all a company's shares at the current share price. It's a quick way to see how big the company is in the stock market.÷Total Shareholders' EquityTotal shareholders' equity is the residual value of the company after all liabilities are subtracted from assets. It represents the book value belonging to the company's owners.=Price to Book (MRQ)

Where it fits

Price to Book (MRQ)→Valuation

The price-to-book ratio (P/B) compares a company's market value to its book value—the accounting value of shareholders' equity on the balance sheet. This ratio indicates how much investors pay relative to the company's net asset base and has historically been a key metric for value investors seeking assets trading below their accounting worth.

The calculation uses the most recent quarter (MRQ) book value:

P/B Ratio = Share Price / Book Value Per Share
P/B Ratio = Market Capitalisation / Total Shareholders' Equity

For example, if a company's stock trades at $30 and its book value per share is $20, the P/B ratio is 1.5. Investors pay $1.50 for every $1 of accounting book value.

Interpreting P/B levels:

  • P/B < 1.0: Stock trades below book value; potentially undervalued or distressed
  • P/B = 1.0-2.0: Moderate premium to book value
  • P/B = 2.0-5.0: Significant premium; market values intangibles not on balance sheet
  • P/B > 5.0: High premium; typical for asset-light businesses with strong brands/IP

P/B varies substantially by sector:

  • Banks/financials: P/B of 0.5-2.0; assets are financial instruments with known values
  • Utilities/REITs: P/B of 1.0-2.0; substantial tangible assets
  • Technology: P/B of 5-20+; value lies in IP, talent, and network effects not on balance sheet
  • Consumer brands: P/B of 3-10+; brand value isn't fully captured in book value

Key limitations:

  • Intangible assets: Book value often understates true asset value for modern businesses
  • Historical cost accounting: Assets recorded at purchase price may be worth much more (or less)
  • Different accounting policies: Comparisons across companies or countries can be misleading
  • Negative book value: Companies with accumulated losses may have negative equity

P/B works best for asset-heavy industries like banking, insurance, and real estate where book value meaningfully approximates liquidation value. For technology and service businesses, other metrics are typically more relevant.