P/B Ratio

The price-to-book ratio divides the share price by book value per share — the company's assets minus its debts. A P/B of 1 means the market values the company at exactly what its books say it is worth.

A P/B below 1 implies that liquidating the company and selling everything would leave more than the share price. It looks cheap on paper, but usually the market either doubts those book values or expects continued losses.

P/B works best where assets are physical and real: banks, insurers, steel and shipbuilding, where buildings, equipment and loans sit plainly on the balance sheet. For software and platform companies, whose value lives in people and code, book value says little.

Read it with ROE and the picture sharpens. Low P/B with low ROE means a company sitting on assets it cannot turn into profit. High P/B with high ROE means it earns a lot from little, which can justify the premium.