Price-to-Book (P/B) Ratio
Compares stock price to the book value of equity per share.
Definition
The price-to-book ratio measures the market's valuation of a company relative to its accounting book value. A P/B below 1.0 means the stock trades below its net asset value, common among banks during periods of stress. For financial institutions, P/B is particularly meaningful because bank assets (primarily loans) are carried close to fair value.
Formula
P/B = Stock Price / Book Value Per Share
Why It Matters
Banks are asset-heavy businesses where book value closely reflects underlying asset quality. A P/B of 1.0 or above generally signals the market believes the bank is generating adequate returns on equity.