Price to Book (MRQ)

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.