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Book value and price-to-book (P/B)

Comparing the price with what the company actually owns.

The formulaBook value per share = shareholders' equity ÷ number of sharesP/B = share price ÷ book value per share

Example

Shareholders' equity 30,000,000 rials, 50,000,000 shares, market price 0.900:

Book value per share30,000,000 ÷ 50,000,000 = 0.600

P/B0.900 ÷ 0.600 = 1.5

P/B is especially useful for banks and insurers, whose assets are mostly financial. Below 1 can mean an opportunity — or doubts about the quality of the assets.

All content on this site is for educational purposes only and is not investment advice or a recommendation. Past performance does not guarantee future results. Consult a licensed adviser before making any investment decision.