What does price to book ratio mean?

The price to book ratio, also known as the P/B ratio, is a financial metric used to evaluate a company's market value in relation to its book value. The ratio is calculated by dividing the market price per share by the book value per share. The market price per share is determined by the current trading price of a company's stock in the market, while the book value per share is calculated by dividing the company's total assets minus its total liabilities by the number of outstanding shares. The P/B ratio is used by investors and analysts to assess the value of a company's stock relative to its underlying assets. A low P/B ratio may indicate that a company's stock is undervalued, as the market price is lower than the book value of the company's assets. On the other hand, a high P/B ratio may suggest that the stock is overvalued, as the market price is higher than the book value of the company's assets. It is important to note that the P/B ratio should be used in conjunction with other financial metrics and analysis to gain a comprehensive understanding of a company's financial health and investment potential. Additionally, the P/B ratio may vary significantly across different industries, so it is important to compare a company's P/B ratio to its industry peers for a more accurate assessment.