The price-to-book ratio measures how much investors pay for each dollar of a company's book value, the shareholders' equity left on the balance sheet after subtracting every liability from every asset. A ratio of 1 means the market values the company at exactly its accounting net worth; a ratio of 3 means investors pay three times that amount, usually because they expect the equity to earn high returns. The measure suits businesses whose balance sheets hold most of what they own, which is why bank analysts lean on it and software analysts mostly ignore it. More valuation basics sit in the stocks hub.
How do you calculate the price-to-book ratio?
Divide the share price by book value per share, which is common shareholders' equity divided by the number of common shares outstanding.
Multiplying both parts by the share count gives the same answer as market capitalization divided by common equity. Use common equity only: preferred stock and noncontrolling interests sit inside total equity but belong to other claimants, so they come out first. Equity comes from the latest balance sheet in a 10-Q or 10-K, which how to read an earnings report shows how to find, and market capitalization is explained in market cap explained.
Worked example: JPMorgan Chase's P/B on September 30, 2026
JPMorgan's financial supplement for the third quarter of 2026 reports these period-end figures:
- Total stockholders' equity: $372,368 million, less $21,040 million of preferred stock, leaves common equity of $351,328 million
- Common shares at period-end: 2,655.6 million
- Book value per share: $351,328 million ÷ 2,655.6 million = $132.30
- Market capitalization: $878,555 million, or $330.83 per share
- P/B: $330.83 ÷ $132.30 = 2.50
Investors were paying two and a half times the bank's accounting equity. One reason is return on equity: JPMorgan reported 17% for the quarter, and equity that compounds at that pace is worth more than its recorded amount. The two are tied together: P/B equals the P/E ratio multiplied by return on equity, when both use the same earnings and book value.
What is tangible book value?
Tangible book value is common equity minus goodwill and other identifiable intangible assets, usually net of the deferred tax liabilities tied to them.
Goodwill is the premium a company paid over the fair value of the net assets it acquired, and it cannot be sold apart from the business. US capital rules for banks deduct goodwill and most other intangibles, net of related deferred taxes, from common equity tier 1 capital under 12 CFR 217.22, so bank investors track price to tangible book alongside plain P/B.
Worked example: JPMorgan's price to tangible book on September 30, 2026
- Common equity: $351,328 million
- Less goodwill of $52,717 million and other intangible assets of $2,378 million
- Plus $2,897 million of deferred tax liabilities linked to those assets
- Tangible common equity: $299,130 million, or $112.64 per share
- Price to tangible book: $330.83 ÷ $112.64 = 2.94
JPMorgan keeps mortgage servicing rights inside tangible equity and labels the whole measure non-GAAP, with a reconciliation in its supplement. Because each bank writes its own definition, check that reconciliation before comparing tangible book values across banks.
Which sectors does the price-to-book ratio suit?
P/B suits banks, insurers and other financial companies, whose assets are mostly loans and securities recorded close to what they cost or are worth.
Accounting works against companies whose value comes from ideas. US rules expense most research and brand-building costs, and much software development, as the money is spent, while an intangible bought in an acquisition goes on the balance sheet. A company that built its products in-house can therefore show little equity and a high P/B that says more about bookkeeping than about price. S&P Dow Jones Indices announced on October 23, 2026 that from December 21 its US value scores will use an intangibles-adjusted book value to price instead of the plain ratio. Growth vs value investing covers what that changes for style funds.
Worked example: Same profit, very different P/B (illustrative)
Two hypothetical companies each earn $1.0 billion a year and are each valued at $15 billion, a P/E of 15.
- A regional bank with $10.0 billion of equity, mostly loans and bonds: P/B = $15 billion ÷ $10.0 billion = 1.5, and return on equity is $1.0 billion ÷ $10.0 billion = 10%
- A software company with $1.5 billion of equity, because its code, customer lists and brand were paid for as expenses: P/B = $15 billion ÷ $1.5 billion = 10, and return on equity is 66.7%
- Check with P/B = P/E × return on equity: 15 × 0.10 = 1.5 and 15 × 0.667 = 10
On P/B alone the software company looks almost seven times as expensive, yet both cost the same per dollar of profit. Asset-heavy industries such as utilities, steel or shipping sit in between: their factories and fleets are on the balance sheet, but at historical cost less depreciation, which can be far from replacement value.
Where do you see the price-to-book ratio?
You meet P/B on stock screeners and quote pages, in bank earnings releases, on fund fact sheets, in index rules and in academic research on value investing.
- Bank results. Large banks report book value and tangible book value per share every quarter, so P/B can be worked straight from the release.
- Screeners and quote pages. Data providers list P/B beside the P/E, using the latest reported equity; quotes and charts for large US companies are on the stocks page.
- Fund fact sheets. Many equity funds publish the weighted P/B of their holdings, and growth funds show far higher figures than value funds.
- Index methodology. Book value to price is one of S&P's value factors until the December 2026 change.
- Research. The value factor that Eugene Fama and Kenneth French study ranks stocks by book value relative to market value, the inverse of P/B; fundamental vs technical analysis describes how such fundamental measures are used.
How is P/B different from P/E and other ratios?
P/B compares price with net assets at one date, while the P/E compares price with a year of profit, so the two answer different questions.
| Measure | How it is calculated | Works best for | Weak spot |
|---|---|---|---|
| Price-to-book (P/B) | Price ÷ book value per share | Banks, insurers, other balance-sheet businesses | Ignores intangibles built in-house; buybacks shrink book value |
| Price to tangible book | Price ÷ tangible book value per share | Banks, especially after acquisitions | Can turn negative for companies built by acquisition |
| P/E ratio | Price ÷ earnings per share | Companies with steady profits | Meaningless when earnings are negative or one-off |
| Price to free cash flow | Market value ÷ free cash flow | Cash-generating companies | Swings with capital spending |
| Net asset value | Fund assets minus liabilities, per share, at market prices | Mutual funds and ETFs | A fund measure; holdings are priced daily |
Book value per share is an accounting figure that changes once a quarter. A fund's net asset value, by contrast, is recalculated every trading day from market prices, which is why a fund's price rarely strays far from it while a company's price can sit far above or below book.
What mistakes do people make with price-to-book?
The most common mistake is comparing P/B across industries, when the ratio depends heavily on how much of each business shows up on its balance sheet.
- Ignoring negative equity. McDonald's reported a shareholders' deficit of $1,023 million at June 30, 2026. Shares it had bought back and held in treasury cost $80,527 million, almost as much as its $81,845 million of paid-in capital and retained earnings, and $2,340 million of other comprehensive losses pushed the total below zero. A negative P/B there reflects decades of returning cash to shareholders, not a business with no value.
- Trusting book value at face value. Securities a bank holds to maturity are carried at amortized cost. JPMorgan's were carried at $274.6 billion at September 30, 2026 against an estimated fair value of $248.7 billion, a $25.9 billion gap, about $9.74 a share before tax, that book value does not show.
- Missing moves outside profit. Unrealized losses on securities available for sale go through accumulated other comprehensive income. JPMorgan's accumulated loss widened from $7.7 billion to $19.8 billion during the third quarter of 2026, and book value per share slipped to $132.30 from $133.01 despite $15.3 billion of net income.
- Using total equity. Including preferred stock overstates book value per share; at JPMorgan the difference was $21.0 billion.
- Treating a low P/B as automatically cheap. A ratio under 1 often means investors expect losses or poor returns on the equity. The same caution applies to stocks that look cheap on other measures.