How to look at price-to-book

Perhaps the simplest valuation tool in the investor’s toolkit is the price-to-book ratio. You get it by dividing the total value of a company’s shares on the market (its market capitalisation) by the value of all the assets on its balance sheet, less liabilities (its “net asset value” or ‘book value’). There are two main justifications for using it to estimate value. The first is that the book value represents what’s been paid by the company for all its stuff, so it might at least be an indication of its value – after all the company could flog it...

Perhaps the simplest valuation tool in the investor’s toolkit is the price-to-book ratio. You get it by dividing the total value of a company’s shares on the market (its market capitalisation) by the value of all the assets on its balance sheet, less liabilities (its “net asset value” or ‘book value’).

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