Price-to-Book (P/B) Ratio
Definition
Price-to-book is equity value (market capitalization) divided by book value of common shareholders' equity — equivalently, share price divided by book value per share. It compares the market's valuation of equity to its accounting value.
P/B is most meaningful where balance sheets are marked close to fair value — banks, insurers, and other financial institutions — which is why FIG valuation leans on P/B (and P/TBV, using tangible book that excludes goodwill and intangibles) alongside P/E. Its natural companion is return on equity: firms earning ROE above their cost of equity deserve P/B above 1.0.
For asset-light companies (software, brands), P/B is nearly useless because their most valuable assets are internally generated and absent from the balance sheet.
Why interviewers ask
"How would you value a bank?" (P/B and P/TBV with ROE regression, dividend discount models — not EV/EBITDA, since interest is core revenue for banks) is a classic group-specific question. The trap is applying EV multiples to financial institutions or using P/B on companies whose book value is meaningless.
Related terms
Interviews don't test definitions — they test recall under pressure.
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