Price to book ratio
, or price to book
is a another member of the family of valuation ratios
, which are intended to help investor
s 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
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.