Calculation Guidance 4 – P/B Ratio

Similar to the P/E Ratio, a lot of investors use the P/B (Price to Book) Ratio to determine the value of a stock.  The P/B can also be a useful calculation in finance but it should not be the single reason why you buy or sell a stock.

Here is why the P/B ratio is misleading…

A low P/B ratio could mean the stock is undervalued.  However, it could also mean something is wrong with the company.

The P/B ratio varies by industry.  A low P/B for one industry may be a high P/B for another industry.  It’s hard to compare wise investments vs poor investments with ambiguous ratings.

As stated by “It is difficult to pinpoint a specific numeric value of a good P/B ratio.”

Also keep in mind the P/B ratio is 4 numbers and 2 calculations. When you keep reading, you’ll learn how Tykr compares.

Equation:  Share Price / ((Total Assets – Total Liabilities) / Outstanding Shares).