How to use Price-to-Book Ratio to Analyze Stocks

You can calculate the price-to-book, or P/B, ratio by dividing a company's stock price by its book value per share, which is defined as its total assets minus any liabilities. This can be useful when you're conducting a thorough analysis of a stock.

Loading paragraph...

An infographic showing how to calculate the price-to-book ratio in three steps. — Image source: The Motley Fool

Loading image...

Loading paragraph...

Book Value

A company's book value is equal to its total assets, less its liabilities.

Loading paragraph...

BAC Price to Book Value Chart — BAC Price to Book Value data by YCharts

Loading image...

A P/B ratio analysis doesn't tell us much all by itself. To get a more complete picture of a company's valuation, you should use it in combination with profitability metrics such as return on equity (ROE). For example, for the last five years, Bank of America's price-to-book multiple has been lower than JP Morgan Chase's (JPM -2.28%). However, that doesn't necessarily mean that Bank of America is "cheaper." In fact, JP Morgan's ROE has been consistently higher than Bank of America's.

Related investing topics

Loading paragraph...

How to Invest $100

You can start your investment journey with a small sum of money. Here's what to do with it.

How to Invest in Stocks

Are you ready to jump into the stock market? We've got you.

How to Invest in Index Funds

Index funds track a particular index and can be a good way to invest.

How to Invest in Real Estate

When investing in real estate, you have multiple options.

Loading hub_pages...

While price to book can be a useful metric to have in your toolbox, it's only part of the puzzle when it comes to evaluating which stocks are undervalued.

Loading paragraph...

About the Author

John Bromels has been a contributing Motley Fool stock market analyst since 2012 covering information technology, communication services, industrials, energy, materials, utilities, and healthcare sectors. He finds investing to be more interesting and profitable than collectible trading card games and is an award-winning puzzle designer.

TMFTruth2Power

JPMorgan Chase is an advertising partner of Motley Fool Money. John Bromels has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.