Price to book ratio, or
price to book is a another member of the family of
valuation ratios, which are intended to help
investors make sound decisions.
Price to book is simply the quotient of the price of a
companies shares (aka known in the US as
stock ) divided by the firms
book value per share.
Considering this definition, price to book is intended to allow the investor to judge her prospects of repayment, should the firm enter
insolvency and be forced out of business.
Investors should not blindly depend upon a single metric such as
price to book as the sole indicator of a firms financial situation.
Ideally, other measures such as
Price to earnings ratio (aka PE ratio) or
Price to sales should also be evaluated.